50 YEARS SERVING PUBLIC POWER ANNUAL REPORT · nection to the Bonneville Power Administration’s...

5 0 Y E A R S S E R V I N G P U B L I C P O W E R

A N N U A L R E P O R T

1957 2007

OUR VISION The region’s preferred

source for energy

solutions.

OUR mISSION Provide responsible and

cost-effective energy

solutions for the region’s

ratepayers.

CONTENTS

1 A Message From Our Executive Board Chairman and CEO

3 50 years serving public power

4 Generating Resources

10 Energy/Business Services

16 Commitment to Our Community

17 Environmental Management System

18 Looking Ahead

20 50 Years in Review

23 financial DaTa anD inforMaTion

24 Management Report on Responsibility for Financial Reporting

24 Audit, Legal and Finance Committee Chairman’s Letter

25 Report of Independent Auditors

26 Energy Northwest Management’s Discussion and Analysis

38 Balance Sheets

40 Statements of Operations and Fund Equity

41 Statements of Cash Flows

43 Notes to Financial Statements

64 Current Debt Ratings

A Message From Our Executive Board Chairman and Our CEO

Joseph V. (Vic) Parrish ChiEF ExECutiVE OFFiCEr

Sid MorrisonChAirMAn, ExECutiVE BOArd

Energy northwest | 2007 Annual report

Fiscal year 2007 was an exceptional year for our Energy Northwest team! We celebrated our 50th Anniversary of public power service while accom-plishing a myriad of significant achievements tied to our core mission of providing reliable, affordable and environmentally responsible power for the region.

Our success in FY07, as well as the preceding 50 years, is attribut-able to one key ingredient; our people! From the hills of the Nine Canyon Wind Project to the pristine flows of Packwood Lake, to the shop floors of Columbia and every locale between, they continue to put public power and the region’s ratepayers first. We simply could not be more proud of them and all they do for our extended public power family.

The “Trek 2 Excellence” initiative at Columbia Generating Station is an excellent example. Focused on the continuous improvement of Equip-ment Reliability, Human Performance and Training Excellence this initia-tive illustrates the dedication of Energy Northwest workers.

Efforts to renew our 50-year license for the Packwood Lake Hydro-electric Project near Mt. Rainier also began in 2007. The environmentally friendly, 27-megawatt hydropower project began operations in 1964. Mean-while the Columbia Generating Station team is pursuing an extension to our present 40-year license that will keep the 1,230-megawatt reactor operating through 2043. Both efforts will help us continue to deliver reliable, low-cost and environmentally friendly power to our public power community.

Regional population growth and economic vitality continue to drive-up demand for electric power. Satisfying that demand will require innovative approaches to power generation in order to continue our commitment to affordable, reliable and environmentally responsible power. Finding those solutions will require us to investigate new technologies, seek fresh per-spectives and maintain a willingness to balance the interests of all our members.

Ensuring safe, reliable operation of our existing facilities will be an important part of upholding and reinforcing our history of providing solu-tions to the regions energy challenges.

On behalf of the men and women of Energy Northwest we thank you for your continued support and the opportunity to serve the power needs of Northwest ratepayers.

Respectfully,

Joseph V. (Vic) Parrish Sid Morrison Chief exeCutive OffiCer Chairman,

exeCutive BOard

1

2 50 Years Serving Public Power

BOARD of DIRECTORS

EXECUTIVEBOARD

FRONT Clyde Leach Bill Gordon, Assistant Secretary Linda Gott Judy Ridge, President Kathy Vaughn Lori Sanders, Secretary

(left to right)

Dan Gunkel Larry Kenney Tom Casey, Vice Chairman Kathy Vaughn, Assistant Secretary Sid morrison, Chairman Dave Remington, Secretary Edward (Ted) Coates Bill Gordon Jack Janda Tim Sheldon Not pictured – K.C. Golden

(left to right)

BACK Jack Janda Ernie Bolz Roger Sparks Terry Brewer Dan Gunkel Ann Congdon merritt (Buz) Ketcham Ron Hatfield Larry Reese, Vice President Chris Kroupa Tom Casey Ray Sieler

(left to right)

3Energy northwest | 2007 Annual report 3

50 Years Serving Public Power


January 31, 2007, marked the 50th anniversary of a Washington State Conservation and Development

Department order establishing the first Joint Operating Agency in the State of Washington. That was the origin of Washington Public Power Supply System, now Energy Northwest.

As we celebrate 50 years of service we recognize the participation and support of member utilities, and acknowledge the importance of public power to the region. We commemorate the contribution of employees past and present, and continue to work to raise public awareness of Energy Northwest’s historic contributions and current operations.

We have been honored to serve for the last half century and look forward to the next 50 years and beyond.”

EXECUTIVEMANAGEMENT

Sudesh Gambhir, Vice President, Technical Services

Albert E. mouncer, Vice President, Corporate Services/General Counsel/Chief Financial Officer

Scott W. Oxenford, Vice President, INPO Assignment

Joseph V. (Vic) Parrish, Chief Executive Officer

Jack Baker, Vice President, Energy/Business Services

Cheryl Whitcomb, Vice President, Organizational Performance and Staffing/Chief Knowledge Officer

Dale Atkinson, Vice President, Nuclear Generation, Chief Nuclear Officer

(left to right)


COLUmBIA GENERATING STATION

Columbia Generating Station (Columbia), located near the Columbia River, north of Richland, Washington, had a historic year. Employees set a new record of 486 days of continuous reactor operation on October 31, 2006, breaking the previous record of 368 days. Another achieve-ment was the successful completion of the 18th refueling outage (R-18).

Recognizing the need for safe and reliable operation of Columbia and maintaining the facility now and for years to come, fiscal year 2007 marked a period of significantly increased investment. Over $119 million was spent replacing and updating equipment. For example, the Dig-ital Electrohydraulic Control (DEH) system was replaced with a triple redundant, fault tolerant system during R-18, which has significantly increased system reliability. Additionally, two 60-ton feedwater heaters were replaced and numerous pumps, motors and valves were either rebuilt or changed out. Although R-18 took six days longer than originally planned, a tremen-dous scope of work was accomplished that will pay dividends for decades.

In an effort to reduce the amount of radia-tion employees receive at Columbia Generating Station both the reactor recirculation system and the reactor water cleanup systems were decon-taminated during R-18 at a cost of over $5 mil-lion. This effort was highly successful in reducing radiation levels and ranked Columbia as one of the lowest piping radiation dose rate boiling

water reactor plants in the United States, moving it within the top 25 percent. In addition to lower radiation levels, maintenance on and around these systems will be easier and the cost to per-form any necessary maintenance will be lower.

Striving for continuous improvement in safety and excellence, employees are delivering results utilizing three key initiatives.

The Columbia “Trek 2 Excellence” initiative, focusing on human performance, equipment reli-ability and training has marked many positive results. These include a significant reduction in human errors, a record low level of maintenance backlog items and a renewal of the accredita-tion by the National Nuclear Accrediting Board at the Institute of Nuclear Power Operation. This accreditation is for all training programs used to qualify staff on critical procedures to operate and maintain the plant.

Actively Committed to Everyone’s Safety, the “ACES” program promotes an atmosphere where at-risk behaviors are recognized through education, observation and feedback. The goal is to continuously improve our safety performance by encouraging behaviors that maximize a safe work environment.

An industry initiative, “Safety Conscious Work Environment,” focuses on safe operation of Columbia and to maintaining a culture in which all employees feel free to raise concerns both to Energy Northwest management and to the Nuclear Regulatory Commission.

Generating resources

5

During fiscal year 2007 all candidates testing for an initial nuclear operator license with the Nuclear Regulatory Commission successfully passed their exams. In anticipation of staffing needs two additional license classes will be conducted in fiscal year 2008.

Finally, improved operational performance was validated by an intensive evaluation from the World Association of Nuclear Operators (WANO) who evaluated Columbia operations in nine key areas. The validation from WANO measures Columbia against best industry per-formance and encourages the exchange of good practices in nuclear plant performance.


Generating resources

Employees set a new record of 486 days of continuous reactor operation on October 31, 2006, breaking the previous record of 368 days.”


NINE CANYON WIND PROJECTNine Canyon Wind Project (Nine Canyon) had significant accomplishments this fiscal year. Perched on the wheat-covered hills just south of Kennewick, Washington, Nine Canyon produces clean, renewable electricity for the Pacific Northwest region. One of the largest public power owned wind projects in the nation, the 49 wind turbines, each rated at 1.3 megawatts capacity, produced 156,706 net megawatt-hours of electricity in fiscal year 2007. Nine Canyon had a 98.3 percent adjusted avail-ability factor despite several component failures. We are working with the equipment manufacturer to address these component failures prior to the loss of warranty coverage.

Nine Canyon comprises Phase I, with the original 37 wind turbines, and Phase II, with 12 additional turbines added in 2003.

The success of Phases I and II led to authorization for the final expansion of Nine Canyon, Phase III. This phase will add 14 turbines of 2.3 megawatt capacity, increasing the project capacity by 32 megawatts for a total of 96 megawatts.

Benton PUD will upgrade the Nine Canyon elec-trical infrastructure to support the Phase III intercon-nection to the Bonneville Power Administration’s grid. The current schedule has the new turbines generating clean, renewable power for the region by spring 2008. As with Phases I and II, the expansion is financed with municipal bonds.

One of the largest public power owned wind projects in the nation, the 49 wind turbines, each rated at 1.3 megawatts capacity, produced 156,706 net megawatt-hours of electricity in Fiscal Year 2007.”

7Energy northwest | 2007 Annual report

8

PACKWOOD LAKE HYDROELECTRIC PROJECT

Packwood Lake Hydroelectric Project (Packwood) had many successes this fiscal year. Located south of Mount Rainier in the Gifford Pinchot National Forest, Packwood Lake Hydroelectric Project continues to provide environ-mentally friendly power for the region.

Since commercial operation began in 1964, Packwood has produced 4,018,610 megawatt-hours of electricity. In fiscal year 2007, production totaled 97,790 net megawatt-hours, up nine percent from the previous year.

The annual maintenance outage, conducted in October 2006, was com-pleted on time and within budget. The outage consisted of a generator inspec-tion that identified a faulty neutral grounding cable and five small areas on the stator exhibiting signs of potential discharge from corona damage. The cable was replaced and the winding insulation repaired without incident. The generator passed inspection and was returned to service as scheduled.

Work continued on relicensing Packwood for another 50 years. The current 50-year operating license expires in 2010, and the formal relicensing application will be made in 2008.

The power produced by Packwood is purchased by Benton and Franklin County PUDs.

Participating utilities are Benton County PUD, Clallam County PUD, Clark County PUD, Ferry County PUD, Franklin County PUD, Kittitas County PUD, Klickitat County PUD, Lewis County PUD, Mason County PUD No. 3, Skamania County PUD, Snohomish County PUD and Wahki-akum County PUD.


In Fiscal Year 2007, production totaled 97,790 net megawatt-hours, up nine percent from the previous year.”

9

WHITE BLUFFS SOLAR STATION

Performance at White Bluffs Solar Station (White Bluffs) was extremely reli-able this fiscal year, as in the past. When it began operation in May 2002, White Bluffs was the region’s largest photovoltaic solar facility, with a rating of 38.7 kilowatts DC. The 242-panel station is located at the Industrial Development Complex near Columbia Generating Station.

White Bluffs produced 47,052 net kilowatt-hours of electricity during fiscal year 2007.

The Bonneville Power Administration (BPA) integrates White Bluffs’ power into its system and Bonneville Environmental Foundation markets the displaced air pollution and greenhouse gas emissions as “Green Tags.” Buyers that participate in utility green power programs purchase these tags to replace traditional polluting sources of electricity with clean, secure, and sustainable renewable sources of energy from across North America.

During the fiscal year two solar panels were replaced under the manu-facturer’s warranty by Energy Northwest technicians. Also, a new inspec-tion program was implemented to achieve even higher availability.

As a first-of-its-kind generating plant in the Northwest, White Bluffs Solar Station continues to generate interest within both the solar and aca-demic communities.


White Bluffs produced 47,052 net kilowatt-hours of electricity during Fiscal Year 2007.”

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Energy/Business Services


In an ongoing effort to strategically develop an inven-tory of quality wind project sites, the Reardan Twin Buttes project, located in Lincoln County was identified. The site has potential for 60 megawatts of capacity and is the most mature of our wind projects currently under development. The project is presently on hold awaiting results of a discretionary review by the Federal Aviation Administration (FAA) to ensure the project is compatible with designated airspace and aviation uses. Financing for the project is slated to commence immediately after a

favorable determination from the FAA. Projected initial operation for the Reardan Twin Buttes project is mid 2009.

The most recent wind power exploration activity is located in Pacific County in southwest Washington. With a potential for 60 to 100 megawatts of capacity the site could be available for development by 2011. A lease has been signed with the Washington Department of Natural Resources and the environmental baseline documenta-tion effort has commenced.

ExPLORING NEW GENERATING RESOURCES

Energy/Business Services

1 1Energy northwest | 2007 Annual report

APPLIED PROCESS ENGINEERING LABORATORY

Applied Process Engineering Laboratory (APEL) provides a unique business incubator environ-ment for early-stage scientific, engineering and manufacturing businesses. Energy Northwest and the other founding contributors—Pacific Northwest National Laboratory (PNNL), Port of Benton, U.S. Department of Energy, Washington State University Tri-Cities, City of Richland and Tri-City Development Council (TRIDEC)— continue to provide strategic vision and opera-tional support.

Energy Northwest partnered with the Wash-ington Technology Center in 2007 to help APEL improve and diversify the laboratory’s business incubation services. APEL now provides resident and non-resident clients with business consulting and access to funding resources which comple-ment the robust entrepreneurial support initia-tives offered locally.

Four entrepreneurial businesses are based at APEL in addition to anchor tenant PNNL. Each business successfully expanded operations during fiscal year 2007.

Environmental Assessment Services added laboratory space to fulfill larger sampling con-tracts. InnovaTek developed a reformer for hydrogen fuel cells which led to a significant dem-onstration project and increased space to house it.

Energy Northwest’s Environmental Ser-vices Laboratory added clients and has plans to expand the radiological measurement labora-tory. IsoRay Medical leased an additional 15,000 square feet and built radiological pro-duction facilities for brachytherapy seeds. PNNL installed two projects in the APEL high-bay inte-gral to the Waste Treatment Plant pilot project for the U.S. Department of Energy at the Hanford Site.

APEL maintains an occupancy rate of over 95 percent, uncharacteristically high for an incu-bator facility. To meet growing tenant needs, APEL has reconfigured high-bay demonstration space into combined R&D, pilot-scale and pro-duction areas. In addition, the adjacent Annex building has been incorporated into APEL and leased to tenant IsoRay.

Three APEL tenants – Environmental Assess-ment Services, InnovaTek and IsoRay – had a posi-tive impact on economic development by creating 27 new jobs within their businesses in fiscal year 2007.

1 2 50 Years Serving Public Power

CALIBRATION SERVICES LABORATORY

The Calibration Services Laboratory provides in-house services to Columbia Generating Station, including outage support and special testing services. In addition, Calibration Services Laboratory provides support for other Energy Northwest projects such as Packwood, Nine Canyon and H.W. Hill Landfill Gas Power Plant owned by Klickitat County PUD.

While Columbia continues to be a primary customer for the laboratory, demand for services outside of Energy Northwest continues to grow. New and repeat customers continue to praise the laboratory’s quality, service and broad spectrum of capabilities. In addition to large companies such as Bechtel, Pacific Northwest National Laboratory (PNNL), Areva and Wash-ington Demilitarization Company, the laboratory has added numerous small businesses to its growing list of customers.

The Calibration Services Laboratory recently completed eight years of service to the Hanford Site through the Fluor contract and has negotiated an agreement with options to extend services through October 2010. The agreement has been a successful model for Fluor and is often referenced when contracting other work from the Hanford Site to commercial cus-tomers. The laboratory’s contract work with outside customers helps reduce overhead costs at Columbia Generating Station.


ENVIRONmENTAL SERVICES LABORATORY

Since 1992, Energy Northwest’s Environmental Services Laboratory has provided a wide range of chemical analyses and environmental monitoring services to utility, municipal, com-mercial, nuclear, wind power, small business and residential customers.

Services include ecological eval-uations, workplace drug screening, environmental monitoring, National Pollution Discharge Elimination System (NPDES) permit testing, drinking water analyses, solid and hazardous waste site monitoring, lubrication oil condition testing and technical consulting. The laboratory is accredited by the Wash-ington State Department of Health for Workplace Drug Screening and by the Washington State Department of Ecology for the analysis of radiological and non-radiological environmental parameters.


OPERATIONS AND mAINTENANCE SERVICES

Current Operations and Maintenance Services customers include the H.W. Hill Landfill Gas Power Plant owned by Klickitat County PUD and the Olympic View Power Plant owned by Mason County PUD No. 3.

H.W. Hill recently completed the best fiscal year in its history, averaging 9.7 megawatts of load and resulting in production of a record 84,967 megawatt-hours of electricity. This suc-cess is attributed to a new gas cleaning system, reducing scheduled cleaning outages and full implementation of a comprehensive preventative maintenance program.

1 5

PACIFIC mOUNTAIN ENERGY CENTER

Pacific Mountain Energy Center (PMEC), an advanced technology integrated gasification combined cycle power complex, achieved a number of significant development milestones in fiscal year 2007.

An application was submitted for a site cer-tification agreement to the Energy Facility Site Evaluation Council, the Washington State agency offering comprehensive permitting for large power plant facilities.

Other noteworthy permitting accomplish-ments included the issuance of the Draft Envi-ronmental Impact Statement and the determina-tion that the PMEC site is consistent with Cowlitz County land use.

With the enactment of Engrossed Substitute Senate Bill 6001, new power plants, including PMEC, have been selected to take the lead in achieving greenhouse gas emissions reductions for the state of Washington. The gasification pro-cess for PMEC will utilize petroleum coke as the primary feedstock and will convert this refinery waste product into a clean, synthetic gas. PMEC is expected to provide purchasing utilities a cost-effective alternative to the volatile and high cost of natural gas-fired power plants.

By developing PMEC, Energy Northwest continues to work towards its goal of providing reliable, low-cost power with a minimal environ-mental footprint to the Pacific Northwest.

INDUSTRIAL DEVELOPmENT COmPLEx

The Industrial Development Complex (IDC) mission continues to be economic development and reuse of excess assets. The IDC staff completed a highly successful two-year asset sales program on June 30, 2007, which generated significant revenue for Bonneville Power Administration (BPA). All funds generated offset IDC operating costs, which are financed by the BPA. This offset helps reduce upward pressure on rates in the region.

The strategy for 2008 is focused on leasing additional excess facilities at the site. Central to that strategy will be an effort to attract long-term anchor tenants.


Pacific MountainEnergy Center

Energy Northwest and its employees are honored to officially sponsor three vital community orga-nizations: United Way, Head Start and March of Dimes. Employees lead annual campaigns on behalf of each of these important service organi-zations to raise money and increase awareness of the positive impact these agencies make in our community.

Many of our employees are also actively involved in direct support and fund raising efforts for our local American Red Cross, Boy Scouts of

Approximately 450 Energy Northwest employees gave $133,363.82 to United Way this year. Employee pledges fund youth developmental programs, provide hot meals to elder neighbors, help build self-esteem in at-risk youth and provide disaster relief planning for our community. Thirty-four Energy Northwest employees stepped forward to join the United Way Vintner Club leadership program with donations totaling $62,724.

Commitment to Our Community

50 Years Serving Public Power1 6

America, Junior Achievement, American Dia-betes Association and many other charitable organizations.

These activities are supported by the senior management team who provide a conducive, encouraging environment to support employee involvement for each of our official charities. From our CEO to our newest employees, Energy Northwest cares about our community through direct, hands-on involvement.

Energy Northwest continued its annual tradition of supporting the Benton-Franklin Head Start program, hosting Christmas parties at six local schools for 397 children. Gifts were distributed by Energy Northwest employees dressed as Santa and his elves. This joyous program provides the children with a new sense of hope while offering Energy Northwest employees the warm feeling of giving to those in need.

Energy Northwest’s “PowerMarchers” team received the Gold Team Award from the March of Dimes for its 2007 “WalkAmerica” campaign. The team raised a total of $24,188 and was one of two teams who received the Platinum Award for contributions over $20,000.

The Association of Washington Business honored Energy Northwest with a Service Award recognizing the contributions Energy Northwest employees raised and the volunteer hours given in support of United Way.


Energy Northwest is committed to protecting the environment for current and future generations. As part of that commitment, we have a compre-hensive “Environmental Management System” (EMS) program. Our EMS was designed to meet the rigorous requirements of the globally recog-nized International Organization for Standardization (ISO) 14001 stan-dard, with additional emphasis on compliance, pollution prevention and communication.

Energy Northwest’s EMS has been registered to the ISO 14001 stan-dard since April of 2005 by NSF International Strategic Registrations, an accredited registrar. Periodic independent audits of the EMS are required to maintain ISO 14001 registration. This helps ensure that our system remains effective and continually improves.

To minimize Energy Northwest’s impact on the environment, all company activities have been reviewed to identify environmental aspects and determine those that could potentially have significant impacts. They include: waste generation, atmospheric emissions, liquid discharges, storage and use of petroleum, chemicals or radioactive materials and land use. These significant impacts are addressed as a priority by the EMS and are consid-ered when setting environmental objectives and in designing and imple-menting necessary controls and programs. Under the EMS, we monitor the effectiveness of these controls and take corrective and preventative action as needed to continually improve.

To better assess our impact on the environment and the effectiveness of our EMS, we trend environmental performance through the use of Key Per-formance Indicators (KPIs). These indicators monitor performance in areas such as energy production, effluents, emissions, wastes, compliance, pol-lution prevention and recycling. During fiscal year 2007 all environmental KPIs met the established goals.

We are committed to integrating environmental stewardship into everything we do. The Energy Northwest Environmental Stewardship Policy is the cornerstone of our EMS. It demonstrates management commitment and establishes clear expectations.

Environmental Management System


Throughout fiscal year 2008 Energy Northwest and its employees will continue to be responsible stewards and perform at a high level of service to provide clean, renewable energy sources while investigating new energy technologies.

Together with our member utilities, we will be prepared to meet any challenges the future holds.

We are privileged to serve public power and the ratepayers of the Pacific Northwest.

50 Years Serving Public Power1 8

Looking AheadOur dedication to excellence and to the

safe and efficient operation of all of our gener-ating projects remains steadfast. This dedication makes Energy Northwest the preferred choice for development and operation of new generation facilities in the region.

Energy Northwest and its employees have been proud to serve over the last 50 years and will continue this commitment for the next half century and beyond.

The Public Power movement had its advent in the 1920s. Public Utility Districts were created to provide reliable and low cost power for the growing state.

The logical extension was to form a joint agency to build and oper-ate electrical generating facilities. Power was to be provided, at the cost of production, to the ratepayers of the participating public utilities. Such a joint operating agency was authorized and created on January 31, 1957 – the Washington Public Power Supply System, now Energy Northwest.

The first task of the Supply System was to establish by-laws and an organizational structure that would meet the needs of a diverse membership, which ranged from very large municipal utilities to small rural PUDs. The Supply System Board of Directors decided in April 1958 that a small hydroelectric project on Packwood Lake would be the project that would put the organization in business.

1960s

1970s

1950s

Commercial operation of Packwood Lake Hydroelectric, the 27-megawatt project, began in June 1964. In September 1962, President John F. Kennedy signed a bill that authorized the construction of a new dual-purpose nuclear reactor (the N-Reactor) at the Hanford Nuclear Reservation and presided over the groundbreaking in September 1963. Commercial operation of the 860-mega-watt project began in April 1966.

Marked by the boom and bust of attempt-ing to simultaneously construct five nuclear power plants – WNP-1, -2, -3, -4 and -5, many long-time employees and retirees remember these years as excit-ing, challenging, and often frustrating as changes were the only constant.

Of the five nuclear projects started, only one – WNP-2 – would ever be completed. The other plants were even-tually mothballed and terminated. The end of the Cold War brought a sudden reduction in the need for plutonium for defense purposes. In February 1988, the N-Reactor was closed for good.

1980s

1990s

2000s

For the organization as a whole, the establishment of Core Values – Teamwork, Excellence, Accountability, and Mutual Trust through Open and Honest Communications – led to rising standards of professionalism and higher levels of achievement. A growing regional economy and widespread concern for the environment led Supply System leaders to investigate and propose new projects to meet the needs of member utilities.

The first public power wind project in the region – the Nine Canyon Wind Project – was dedicated in October 2002. White Bluffs Solar Station came next, with 242 photovoltaic panels, it was dedicated in May 2002. In keeping with the commitment to responsible stew-ardship, Energy Northwest has adopted an Environmental Management System that has been certified as meeting the stringent standards of ISO 14001:2004.

5 0 Y E A R S S E R V I N G P U B L I C P O W E R

1957 2007


Financial data and information

Energy northwest | 2007 Annual report 2 3

2 4 Financial data and information

Management report on responsibility for Financial reporting

Audit, Legal and Finance Committee Chairman’s Letter

The management of Energy Northwest is responsible for preparing the accompanying financial statements and for their integrity. The statements were prepared in accordance with generally accepted accounting princi-ples applied on a consistent basis, and include amounts that are based on management’s best estimates and judgments.

The financial statements have been audited by PricewaterhouseCoopers LLP, Energy Northwest’s inde-pendent accountants. Management has made available to PricewaterhouseCoopers LLP all financial records and related data, and believes that all representations made to PricewaterhouseCoopers LLP during its audit were valid and appropriate.

Management has established and maintains internal control procedures that provide reasonable assurance as to the integrity and reliability of the finan-cial statements, the protection of assets from unauthor-ized use or disposition, and the prevention and detec-tion of fraudulent financial reporting. These control

The Executive Board’s Audit, Legal and Finance Committee is composed of six independent direc-tors. Members of the Committee are Chairman Larry Kenney, K.C. Golden, Bill Gordon, Jack Janda, Dave Remington, Kathy Vaughn and Sid Morrison, Ex Officio. The Committee held 11 meetings during the fiscal year ended June 30, 2007.

The Committee oversees Energy Northwest’s financial reporting process on behalf of the Executive Board. In fulfilling its responsibilities, the Committee discussed with the internal auditor and the indepen-dent accountants, the overall scope and specific plans for their respective audits, and reviewed Energy North-west’s financial statements and the adequacy of Energy Northwest’s internal controls.

procedures provide appropriate division of respon-sibility and are documented by written policies and procedures.

Energy Northwest maintains an ongoing internal auditing program that provides for independent assess-ment of the effectiveness of internal controls, and for recommendations of possible improvements thereto. In addition, PricewaterhouseCoopers LLP has considered the internal control structure in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. Management has considered recommendations made by the internal auditor and PricewaterhouseCoopers LLP concerning the control procedures and has taken appropriate action to respond to the recommendations. Management believes that, as of June 30, 2007, internal control proce-dures are adequate.

J.V. Parrish A.E. Mouncer Chief exeCutive OffiCer viCe President, COrPOrate serviCes/ GeneraL COunseL/CfO

The Committee met regularly with Energy North-west’s internal auditor and independent accountants to discuss the results of their examinations, their evalu-ations of Energy Northwest’s internal controls, and the overall quality of Energy Northwest’s financial reporting. The meetings were designed to facilitate any private communications with the Committee desired by the internal auditor or independent accountants.

Larry KenneyChairman, audit LeGaL and finanCe COmmittee


report of independent AuditorsTo the Executive Board of Energy Northwest

We have audited the accompanying balance sheet of Energy Northwest and the related individual balance sheets of Energy Northwest’s business units and internal service fund as of June 30, 2007, and the related statements of operations and fund equity and of cash flows for the year then ended. Energy Northwest’s busi-ness units include the Columbia Generating Station, Packwood Lake Hydroelectric Project, Nuclear Project No. 1, Nuclear Project No. 3, the Business Development Fund, and the Nine Canyon Wind Project. These basic financial statements are the responsibility of Energy Northwest’s management. Our responsibility is to express an opinion on these basic financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the basic financial statements are free from material misstatement. An audit includes exam-ining, on a test basis, evidence supporting the amounts and disclosures in the basic financial statements. An audit also includes assessing the accounting principles

used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a rea-sonable basis for our opinions.

In our opinion, the basic financial statements referred to above present fairly, in all material respects, the financial position of Energy Northwest and Energy Northwest’s business units and internal service fund at June 30, 2007, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The Management’s Discussion and Analysis listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of manage-ment, regarding the methods of measurement and pre-sentation of the required supplementary information. However, we did not audit the information and express no opinion on it.

Portland, OregonSeptember 24, 2007


Energy northwest Management’s discussion and Analysis

Because each Business Unit is financed and accounted for separately, the following section on financial performance is discussed by Business Unit to aid in analysis of assessing the financial position of each individual Business Unit. For comparative purposes only, the table on the following page represents a memorandum total only for Energy Northwest, as a whole, for fY 2007 and fY 2006 in accordance with GasB No. 34, “Basic Financial Statements-and Management’s Discussion and Analysis-for State and Local Governments.”

The financial statements for Energy North-west include the Balance Sheets, Statements of

Energy Northwest is a municipal corporation and joint operating agency of the State of Washington. Each Energy Northwest Business Unit is

financed and accounted for separately from all other current or future business assets. The following discussion and analysis is organized by Business Unit. The management discussion and analysis of the financial performance and activity is provided as an introduction and to aid in com-paring the basic financial statements for the Fiscal Year (fY) ended June 30, 2007, with the basic financial statements for the fY ended June 30, 2006. Energy Northwest has adopted accounting policies and principles that are in accordance with Generally Accepted Accounting Principles (GaaP) in the United States of America. Energy Northwest’s records are maintained as prescribed by the Governmental Accounting Standards Board (GasB) and, when not in conflict with GasB pronouncements, accounting prin-ciples prescribed by the Financial Accounting Standards Board (fasB). (see nOte B tO the finanCiaL statements).

Operations and Fund Equity, the Statements of Cash Flows for each of the Business Units and Notes to Financial Statements.

The Balance Sheets present the financial position of each Business Unit on an accrual basis. The Balance Sheets report financial infor-mation about construction work in progress, the amount of resources and obligations, restricted accounts and due to/from balances (see Note B to the Financial Statements) for each Business Unit.

The Statements of Operations and Fund Equity provide financial information relating to all expenses, revenues and equity that reflect the


results of each Business Unit and its related activ-ities over the course of the Fiscal Year. The finan-cial information provided aids in benchmarking activities, conducting comparisons to evaluate progress, and determining whether the Business Unit has successfully recovered its costs.

The Statements of Cash Flows reflect cash receipts and disbursements and net changes resulting from operating, financing and invest-ment activities. The statements provide insight into what generates cash, where the cash comes from, and purpose of cash activity.

The Notes to Financial Statements present disclosures that contribute to the understanding of the material presented in the financial

COmBINED FINANCIAL INFORmATION June 30, 2007 and 2006 (000’s)

2006 2007 ChangeAssetsNet Plant $ 1,524,835 $ 1,512,222 $ (12,613)

Nuclear Fuel 190,483 235,742 45,259

Current and Restricted Assets 439,728 497,562 57,834

Long-term Receivables and Deferred Charges 4,434,978 4,517,173 82,195

TOTAL ASSETS $ 6,590,024 $ 6,762,699 $ 172,675

Fund Equity $ (29) $ (7,667) $ (7,638)

Long-Term Debt $ 6,240,866 $ 6,379,097 $ 138,231

Restricted and Non-current Liabilities 262,620 274,625 12,005

Current Liabilities 85,118 113,504 28,386

Deferred Credits 1,449 3,140 1,691

TOTAL EQUITY AND LIABILITIES 6,590,024 6,762,699 172,675

Operating Revenues $ 413,919 $ 452,402 $ 38,483

Operating Expenses 300,582 355,675 55,093

Net Operating Revenues $ 113,337 $ 96,727 $ (16,610)

Other Income and Expense (120,202) (105,136) 15,066

Distribution and Contributions 1,384 771 (613)

Beginning Fund Equity 5,452 (29) (5,481)

ENDING FUND EQUITY $ (29) $ (7,667) $ (7,638)

statements. This includes, but is not limited to; Schedule of Outstanding Long-Term Debt and Debt Service Requirements (see Note E – Long-Term Debt), accounting policies, significant balances and activities, material risks, commit-ments and obligations and subsequent events, if applicable.

The basic financial statements of each Busi-ness Unit should be used individually along with the notes to the financial statements and the management discussion and analysis to provide an overview of Energy Northwest’s financial performance. Questions concerning any of the information provided in this report should be addressed to Energy Northwest at PO Box 968, Richland, WA, 99352.


0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

FY 2003FY 2004FY 2005FY 2006FY 2007

3.69

Columbia Generating StationCost of Power - Cents / kWh

2.12

3.34

2.19

3.01

0 2,000 4,000 6,000 8,000 10,000

FY 2003

FY 2004

FY 2005

FY 2006

FY 2007 8,017

9,636

7,599

9,520

7,738

Columbia Generating StationNet Generation - GWhrs

COLUmBIA GENERATING STATION

The Columbia Generating Station (Columbia) is owned by Energy Northwest and its Participants and operated by Energy Northwest. The Plant is a 1,157 megawatt electric (MWe, Design Electric Rating, net) boiling water nuclear power station located on the Department of Energy’s (dOe) Hanford Reservation north of Richland, Washington.

Columbia achieved a record run for genera-tion which ended in fY 2007. The record genera-tion run began on July 2, 2005, ending October 31, 2006, resulting in a continuous daily record run of 486 days.

Columbia produced 8,017 gigawatt-hours (GWh) of electricity in fY 2007, as compared to 9,636 GWh of electricity in fY 2006, which included economic dispatch of 33 GWh and 101 GWh respectively. Columbia successfully com-pleted its two-year refueling and maintenance outage (R-18) in June of 2007, in 44 days with costs totaling $120.0 million. Generation was less in fY 2007 as compared to fY 2006, due to r-18, three forced outages (November 2006, April 2007 and June 2007) and the effects of the entire fY 2006 being included in the record generation run discussed previously.

Columbia’s performance is measured in sev-eral ways, including cost of power at Columbia. The cost of power for fY 2007 was 3.69 cents per kilowatt-hour (kWh) as compared with 2.12 cents per kWh in fY 2006. The industry cost of power fluctuates year to year depending on var-ious factors such as refueling outages and other planned activities. R-18 was the major driver for the increased cost of power as compared with fY 2006.


Balance Sheet Analysis The net decrease to Plant in Service and Construction Work In Progress (CWiP) from fY 2006 to fY 2007 (excluding nuclear fuel) was $18.6 million. The additions to Plant/CWiP of $53.5 million were offset by an increase to Accumulated Depreciation of $72.1 million resulting in the net decrease to Plant of $18.6 million. The majority of additions to plant for fY 2007 resulted from the work performed up to and during r-18. Seven major projects (Feedwater Heaters, Digital Electro-Hydraulic (deh) upgrade, Reactor Recirculation Motor Refurbishment, Condensate Valve work, Control Rod Blade Replacement, Radiation Monitor Replacement, and High Pressure Core Spray (hPCs) Pump Refurbishment/Replacement) resulted in 71 percent of the additions to plant.

Nuclear fuel, net of accumulated amorti-zation, increased $45.3 million from fY 2006 to $235.7 million for fY 2007. During fY 2007, Columbia purchased $69.1 million of nuclear fuel, which completed the planned purchases for r-19 and r-20. The increase to nuclear fuel was offset by current year amortization of $23.8 million.

The Restricted Assets Special Funds decreased $41.3 million from fY 2006 levels to $63.4 million in fY 2007. Construction Fund spending and the completion of the planned fuel purchases for R-19 and r-20 contributed to the decrease.

The Debt Service Funds increased $6.8 mil-lion in fY 2007 to $54.3 million. The increase was created from funding increases in fY 2007 due to borrowing activities.

Long-term receivables remained relatively stable, increasing from $0.4 million in fY 2006 to $1.1 million in fY 2007. The slight increase was due to a change in estimate resulting from R-18 activity. Current assets increased $44.1 million in fY 2007 to $175.4 million. The majority of the increase was due to $26.7 million of reimburse-ments of operations using the direct pay billing and increases to materials and supplies of $17.4

million which were related to r-18 and budgeted maintenance items.

Deferred charges increased $27.5 million in 2007 from $667.0 million to $694.5 million. Costs in Excess of Billings increased $27.9 million which was offset slightly by a decrease to unam-ortized debt expense of $0.4 million. The increase to Costs in Excess was due to refunding current maturities while extending the overall maturi-ties on the refunding debt. In addition, the accu-mulated decommissioning and site restoration accrued costs are not currently billed to Bonnev-ille Power Administration (BPa). BPa holds and manages a trust fund for the purpose of funding decommissioning and site restoration (see Note B to the Financial Statements, “Decommissioning and Site Restoration”). The balances in these external trust funds are not reflected on Energy Northwest’s Balance Sheet.

Long-Term Debt increased $42.6 million in fY 2007 from $2.35 billion to $2.39 billion, which was a result of the fY 2007 Bond Issue. In fY 2007, new debt was issued for various Columbia con-struction projects, as well as for part of the Debt Optimization Program (see Note E to the Finan-cial Statements).

Through June 30, 2006, Energy Northwest was being paid by the Participants for Net Bill-ings. The payments were based on a percentage of ownership in Columbia and Nuclear Projects No. 1 and 3 and reflected budgeted costs for oper-ations of the fiscal year. Beginning in fY 2007, Energy Northwest began billing Bonneville Power Administration on a monthly basis for estimated expenses, not to exceed the approved budget, instead of billing and receiving the participants’ legal obligations. The change in billing arrange-ment does not impact the Net Billing Agreements for Columbia and Nuclear Projects No. 1 and 3.


Statement of Operations AnalysisColumbia is a net-billed Project. Energy Northwest recognizes revenues equal to expense for each period on net-billed projects. No net revenue or loss is recognized and no equity is accumulated.

Operating expenses increased $53.7 mil-lion from fY 2006 to $335.2 million mostly due to the effect of R-18 completed in fY 2007, with operations and maintenance increasing $66.2 million from fY 2006. There were decreases in fuel and fuel disposal of $14.0 million and genera-tion taxes of $0.5 million which were related to the decreased generation for fY 2007. There were other nominal increases of $2.0 million relating to general operations and depreciation.

Other Income and Expenses decreased $14.6

$

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

FY 2003FY 2004FY 2005FY 2006FY 2007

Columbia Generating StationTotal Operating Costs (000’s)

Operating Expenses

Other Income / Expenses

million from fY 2006 to $101.8 million in fY 2007. The majority of the overall decrease was due to increases in net revenues from a building sale of $5.5 million and loaned fuel revenue of $6.9 million combined with a decrease of $6.5 mil-lion relating to the net effects of Columbia Debt activity (see Note E to the Financial Statements). A slight decrease in interest earnings of $1.2 mil-lion and Columbia general services and sales activity decreases of $3.1 million accounted for the remainder of the changes. The loaned fuel agreement associated with the fY 2007 revenue was completed in fY 2007. A new fuel lease agree-ment is in effect through fY 2009, which provides for an exchange of uranium oxide (u3O8) for an equivalent amount of uranium hexafluoride (uf6) plus the cash value of conversion services.

Columbia total revenue increased from $397.9 million in fY 2006 to $437.0 million in fY 2007. The increase of $39.1 million is due to the increased costs incurred for r-18 and the related effect of the net billing agreements on total revenue.


PACKWOOD LAKE HYDROELECTRIC PROJECT

The Packwood Lake Hydroelectric Project (Packwood) is owned and operated by Energy Northwest. Packwood consists of a dam at Packwood Lake and a powerhouse 1800 feet below the dam that is located south of Packwood, Washington. Packwood produced 97.80 GWh of electricity in fY 2007 versus 85.22 GWh in fY 2006. Due to good water conditions and a successful outage, Packwood experienced its highest generation levels in the last five years, which were 6.3 percent above the 30-year average of 92 GWh. Water conditions reflected the oppo-site scenario that was prevalent in fY 2006 when generation was impacted due to the Northwest drought situation, resulting in the lowest genera-tion on record for July and August, 2005. In November 2006, Lewis County was declared a disaster area because of torrential rain and flooding. During this event a large slide occurred adjacent to the Packwood underground pipeline. Energy Northwest submitted a “Public Assistance Grant” request to the Washington State Military Department (Emergency Management Division) and Federal Emergency Management Agency (fema) for financial aid to stabilize and repair the slide area. The acceptance of the grant is pending; preliminary estimates of repair are $1.7 million.

Packwood’s performance is measured in several ways, including cost of power. The cost of power for fY 2007 was $1.31 cents/kWh as com-pared to $1.61 cents/kWh in fY 2006. The cost of power fluctuates year to year depending on various factors such as outage maintenance and other operating activities. The fY 2007 cost of power decrease was due to a 6.3 percent higher than anticipated generation increase and lower operations and maintenance costs due to under running the outage budget.

0 20 40 60 80 100

FY 2003

FY 2004

FY 2005

FY 2006

FY 2007 97.80

85.22

88.31

90.10

91.10

Packwood Lake Hydroelectric ProjectNet Generation - GWhrs

0.00

0.50

1.00

1.50

2.00

2.50

FY 2003FY 2004FY 2005FY 2006FY 2007

1.31

Packwood Lake Hydroelectric ProjectCost of Power - Cents / kWh

1.61

2.002.13

1.63


Balance Sheet AnalysisTotal Assets increased $1.4 million from fY 2006, with $1.0 million of the increase due to costs incurred and capitalized for the relicensing effort. There were no significant changes to current liabilities other than a decrease in Revenue Bonds Payable of $0.7 million and the related increase in Deferred Credits of $1.7 million due to opera-tions, relicensing and bond retirements. No new debt was issued and the total debt continues to decrease per the current debt schedules. Similar to the previous fiscal year, there was no excess funding accrued in fY 2007. Participants have agreed to retain all excess within the Packwood business unit for relicensing efforts.

Packwood has incurred $2.4 million in reli-censing costs through fY 2007. These costs are shown as Deferred Charges on the Balance Sheet. The fY 2008 projections call for an additional $0.7 million in costs to continue the relicensing efforts. The Federal Regulatory Commission (ferC) issued a fifty-year operating license to Packwood on March 1, 1960. The current license will expire on February 28, 2010.

$(100)

$150

$400

$650

$900

$1,150

$1,400

$1,650

$1,900

FY 2003FY 2004FY 2005FY 2006FY 2007

Packwood Lake Hydroelectric ProjectTotal Operating Costs (000’s)

Operating Expenses


Statement of Operations AnalysisThe agreement with Project Participants (see Note A to the Financial Statements) obligates them to pay annual costs and to receive excess revenues. Accordingly, Energy Northwest recog-nizes revenues equal to expenses for each period. No net revenue or loss is recognized and no equity is accumulated.

Operating expenses decreased $43k in fY 2007 due to a decrease in purchased power costs of $165k which was slightly offset by an increase to operations and maintenance expense of $121k.

Packwood is obligated to supply a speci-fied amount of power. If power production from Packwood does not supply the required amount of power, the shortfall is provided by purchasing power on the open market. The decrease in fY 2007 expenses reflects the change in water conditions from fY 2006. Conversely, if there is excess capacity per the power sales agreement with Benton and Franklin Puds, Energy North-west sells the excess on the open market for addi-tional revenues to be included as part of the power purchase agreements with the participants of the Project (see Note E, Long-Term Debt, “Security – Packwood Lake Hydroelectric Project”).

Other income and expenses changed from a net expense of $8k to an income of $65k. The increase is due to decreasing interest and other bond related expenses ($27k savings from fY 2006) and increase interest earnings of $46k over fY 2006 levels on invested funds.


NUCLEAR PROJECT NO. 3

Nuclear Project No. 3, a 1,240 MWe plant, was placed in extended construction delay status in 1983, when it was 75 percent complete. On May 13, 1994, Energy Northwest’s Board of Directors adopted a resolution terminating Nuclear Project No. 3. Energy Northwest is no longer responsible for any site restoration costs as they were transferred with the assets to the Satsop Redevelopment Project (see Note F, Commitments and Contingencies). The debt service related activities remain and are net-billed.

Balance Sheet AnalysisUnder the Debt Optimization Program, long-term debt increased $20.1 million from $1.833 billion in fY 2006 to $1.853 billion in fY 2007 due to debt restructuring to take advantage of lower interest rates.

Statement of Operations AnalysisOverall expenses increased $4.0 million from fY 2006. Bond related expenses increased $3.6 million as a result of the debt restructuring. The remaining change in other expenses was a combination of lower investment income of $0.6 million due to market conditions and the continued decrease to plant preservation costs of $0.2 million.

NUCLEAR PROJECT NO. 1

Energy Northwest wholly owns Nuclear Project No. 1. Nuclear Project No. 1, a 1,250 MWe plant, was placed in extended construction delay status in 1982, when it was 65 percent complete. On May 13, 1994, Energy Northwest’s Board of Directors adopted a resolution terminating Nuclear Project No. 1. All funding requirements are net-billed obligations of Nuclear Project No. 1. Termination expenses and debt service costs comprise the activity on Nuclear Project No. 1 and are net-billed.

Balance Sheet AnalysisUnder the Debt Optimization Program, long-term debt increased $5.3 million from $1.971 billion in fY 2006 to $1.976 billion in fY 2007 due to debt restructuring to take advantage of lower interest rates.

Statement of Operations AnalysisOther Income and Expenses showed a net increase to other expenses of $8.2 million, up from $105.2 million in fY 2006 to $113.4 million in fY 2007. The net increase was due to increased bond related expenses of $5.9 million, decreased revenues from investment income of $1.9 million, decreases to gain on sales of assets of $0.9 million, and increased costs for decommissioning and plant preservation of $0.5 million.


BUSINESS DEVELOPmENT FUND

Energy Northwest was created to enable Washington public power utilities and municipal-ities to build and operate generation projects. The Business Development Fund (Bdf) was created by Executive Board Resolution No. 1006 in April 1997, for the purpose of holding, administering, disbursing, and accounting for Energy Northwest costs and revenues generated from engaging in new energy business opportunities.

The Bdf is managed as an enterprise fund. Four business sectors have been created within the fund: General Services and Facilities, Genera-tion, Professional Services and Business Unit Sup-port. Each sector may have one or more programs that are managed as a unique business activity.

Balance Sheet AnalysisThere was a slight overall decrease to the Balance Sheet from fY 2006 to fY 2007. The $0.5 million decrease in net assets consisted of a $0.6 million decrease in receivables, which was due to timing of fY 2006 year end receivables and a $0.1 million dollar increase in allocated Internal Service Fund plant. Accounts Payable and Accrued Expenses increased slightly from $1.5 million in fY 2006 to $1.8 million in fY 2007.

Statement of Operations AnalysisOperating Revenues in fY 2007 totaled $7.6 million as compared to fY 2006 revenues of $7.8 million, a slight decrease of $0.2 million; operating expenses were steady at $11.9 million. Net opera-tions for fY 2007 showed a loss of $2.6 million compared to a loss in fY 2006 of $2.3 million.

Power generation development activities are centered around the Pacific Mountain Energy Center (PmeC) and three wind generation proj-ects that are being developed in the Northwest.

PMEC is a proposed 680 MWe $1.5 billion Integrated Gasification Combined Cycle (iGCC) power generation plant in western Washington. Permitting efforts are currently ongoing for PmeC, which totaled $1.7 million for fY 2007. When the permit is granted financing efforts will commence.

Wind generation development resulted in $0.2 million in expenditures and $0.4 mil-lion in revenues. The Nine Canyon Phase iii 36 MW development in Kennewick, Washington, completed a financial bond sale of $72.6 mil-lion that resulted in $0.3 million in revenue and cost recovery. Additional revenue of $55k was obtained by selling abandoned wind mining site data. The other fY 2007 wind prospecting efforts resulted in two project land leases accounting for $0.3 million in expenditures. Permitting activity and technical evaluations are being conducted at each site with an anticipated resource of 60 MW per site.

The BioEnergy Solutions business line was minimized in 2007, resulting in a net expendi-ture of $36k for fY 2007. This business line will respond to and evaluate opportunities but limit proactive expenditures for new development. Future activities in this area will concentrate on supporting an existing consulting agreement with King County, Washington.

The Business Development Fund receives contributions from the Internal Service Fund to cover cash needs during startup periods. Initial startup costs are not expected to be paid back and are shown as contributions. As an operating busi-ness unit, requests can be made to fund incurred operating expenses. In fY 2007, the Business Development Fund received contributions (trans-fers) of $1.8 million, down slightly from $2.4 mil-lion from fY 2006.


0 20 40 60 80 100 120 140 160

FY 2003

FY 2004

FY 2005

FY 2006

FY 2007 156.71

158.34

154.52

138.45

90.69

Nine Canyon Wind ProjectNet Generation - GWhrs

NINE CANYON WIND PROJECT

The Nine Canyon Wind Energy Project (Nine Canyon) is owned and operated by Energy Northwest. Nine Canyon is located in the Horse Heaven Hills area southwest of Kennewick, Washington. Electricity generated by Nine Canyon is purchased by Pacific Northwest Public Utility Districts (purchasers). Each purchaser of Phase i has signed a 28-year power purchase agreement with Energy Northwest; each purchaser of Phase ii has signed a 27-year power purchase agree-ment, and each purchaser of Phase iii has signed a 23-year power purchase agreement. The agree-ments are part of the 2nd Amended and Restated Nine Canyon Wind Project Power Purchase Agreement which now have an agreement end date of 2030. Nine Canyon is connected to the Bonneville Power Administration transmission grid via a substation and transmission lines constructed by the Benton County Public Utility District.

Phase i of Nine Canyon, which began com-mercial operation in September 2002, consists of 37 wind turbines, each with a maximum gener-ating capacity of approximately 1.3 mW, for a total capacity of 48.1 mW. Phase II of Nine Canyon, which was declared operational in December 2003, includes an additional 12 wind turbines with an aggregate generating capacity of approxi-mately 15.6 mW. The current total Nine Canyon generating capability is 63.7 mW, which produces enough energy for approximately 26,000 average homes. Phase iii of Nine Canyon, currently under construction and scheduled for completion in February 2008, includes 14 wind turbines, each with a maximum generating capacity of 2.3 mW, for an aggregate generating capacity of 32.2 mW. Phase iii will increase the total Nine Canyon gen-erating capability to 95.9 mW, which will produce enough energy for approximately 39,000 average homes.

Nine Canyon produced 156.71 GWh of elec-tricity in fY 2007 versus 158.34 GWh in fY 2006.

Nine Canyon’s performance is measured in several ways, including cost of power. The cost of power for fY 2007 was $8.20 cents/kWh as com-pared to $7.30 cents/kWh in fY 2006. The cost of power fluctuates year to year depending on var-ious factors such as wind totals and unplanned maintenance. The fY 2007 cost of power increase was mostly due to unanticipated increases in wind turbine maintenance due to gear box failures.

0.00

2.00

4.00

6.00

8.00

10.00

FY 2003FY 2004FY 2005FY 2006FY 2007

8.20

Nine Canyon Wind ProjectCost of Power - Cents / kWh

7.30

6.47 6.666.30


Balance Sheet AnalysisAssets increased from $80.2 million in fY 2006 to $148.4 million in fY 2007 mostly due to the receipts of funds relating to the $72.6 million bond sale for funding of Phase III. The increase to assets related to the bond sale was slightly offset by an increase to accumulated depreciation of $3.7 million from fY 2006 to fY 2007. Receivables decreased slightly by $0.4 million which corresponds to the decrease in amount of the Renewable Energy Performance Incentive (rePi) payment accrued. The fY 2006 rePi accrual was $1.2 million compared to $0.8 million for fY 2007. The increase of $73.8 million to liabilities was a direct result of the Phase iii bond sale. The decrease in Fund Equity was $5.6 million in fY 2007 as compared to a $4.1 million decrease in fY 2006. The continued decline in Fund Equity is because the original plan anticipated operating at a loss in the early years and gradually increasing the rate charged to the purchasers to avoid a large rate increase after the rePi expires. The rePi incentive expires ten years from the initial opera-tion startup date for each Phase. Reserves that were established are used to facilitate this plan.

$

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

FY 2003FY 2004FY 2005FY 2006FY 2007

Nine Canyon Wind ProjectTotal Operating Costs (000’s)

Operating Expenses


Statement of Operations AnalysisOperating Revenues increased slightly

from $6.3 million in fY 2006 to $6.5 million in fY 2007. The project received revenue from the billing of the project purchasers at an average rate of $37.2 per MWh for fY 2007 which was a planned 3 percent increase from fY 2006. There was an increase in operating expenses of $1.4 mil-lion from $5.8 million in fY 2006 to $7.2 million in fY 2007 due to increased maintenance costs. Other revenue and expenses decreased $0.2 mil-lion from fY 2006 to $5.5 million in fY 2007. Net losses of $6.2 million for fY 2007 continued the trend from previous years. This trend is reflected in the declining Fund Equity balance.

Energy Northwest has accrued, as income (contribution) from the dOe, rePi payments that enable Nine Canyon to receive funds based on generation as it applies to the rePi bill. The rePi was created as part of the Energy Policy Act of 1992 to promote increases in the generation and utilization of electricity from renewable energy sources and to further the advances of renewable energy technologies. This program, authorized under section 1212 of the Energy Policy Act of 1992, provides financial incentive payments for electricity produced and sold by new qualifying renewable energy generation facilities. Nine Canyon recorded a receivable of $0.8 million which represented twenty-seven percent of the $3.0 million applied for rePi funding in fY 2007. The payment stream and the rePi receipts were projected to cover the total costs over the life of the purchase agreement. The reserve funds were established so that the participant payments would increase at a rate of three percent per year over the life of each power purchaser agreement. Permanent shortfalls in rePi funding will lead to increases in the billing for fY 2008 and subse-quent years to the participants in order to cover total Nine Canyon costs.


INTERNAL SERVICE FUND

The Internal Service Fund (isf) (formerly the General Fund) was established in May 1957. The Internal Service Fund provides services to the other funds. This fund accounts for the central procurement of certain common goods and services for the business units on a cost reimbursement basis (see Note A and Note B to Financial Statements).

Balance Sheet AnalysisThe fY 2007 Balance Sheet increased slightly from fY 2006. Assets increased $0.2 million primarily due to an increase of $3.1 million in due from other business units related to end of year obligations and a $0.2 million dollar increase to cash and investments for personal time bank (employee leave program), disability, and worker’s compensation requirements. These changes were offset by a $2.0 million increase in accumulated depreciation, and a $1.1 million decrease due to business unit activity in performance fee invest-ments. The net increase in Fund Equity and Liabilities is from an increase of $1.4 million to Payroll related expenses, $0.5 million in current liabilities related to Accounts Payables which was offset by a decrease of $0.5 million to employee benefits and reserves and $1.2 million decrease relating to Performance Fee draw downs.

Statement of Operations AnalysisNet Revenues for fY 2007 remained relatively steady from fY 2006 (down $109k). Investment income was up $63k due to better return on investments. Rental revenues for available build-ings at corporate headquarters were down $271k as lease utilization was lower in fY 2007. There were slight increases to non-utility revenues of $90K with daily operations resulting in the remainder of the change from fY 2006.


BALANCE SHEETS As of June 30, 2007 (Dollars in Thousands)

Columbia Generating

StationPackwood Lake

ProjectNuclear Project

No.1*Nuclear Project

No.3*

Business Development

FundNine Canyon Wind Project Subtotal

Internal Service Fund

2007 Combined

Total

Assets

UTILITY PLANT (NOTE B)

In service $ 3,578,218 $ 13,098 $ - $ - $ 1,230 $ 74,268 $ 3,666,814 $ 46,765 $ 3,713,579

Not in service 25,253 25,253 25,253

Accumulated depreciation (2,174,753) (12,492) (25,253) (496) (16,041) (2,229,035) (35,751) (2,264,786)

1,403,465 606 - - 734 58,227 1,463,032 11,014 1,474,046

Nuclear fuel, net of accumulated amortization 235,742 235,742 235,742

Construction work in progress 26,999 11,177 38,176 38,176

1,666,206 606 - - 734 69,404 1,736,950 11,014 1,747,964

RESTRICTED ASSETS (NOTE B)

Special funds

Cash 9,014 173 179 2 9,368 860 10,228

Available-for-sale investments 54,409 294 7,412 10,633 53,730 126,478 903 127,381

Accounts and other receivables 790 790 790

Debt service funds

Cash 54,337 6 389 1,379 7,149 63,260 63,260

Available-for-sale investments 763 49,862 28,467 13,869 92,961 92,961

Due from other funds 296 134 430 -

117,760 1,063 58,132 40,792 - 75,540 293,287 1,763 294,620

LONG-TERm RECEIVABLES (NOTE B) 1,104 - - - - - 1,104 - 1,104

CURRENT ASSETS

Cash 15,052 424 796 2 53 108 16,435 1,096 17,531

Available-for-sale investments 40,689 1,536 6,504 4,210 1,081 54,020 25,546 79,566

Accounts and other receivables 738 233 1,587 277 2,835 61 2,896

Due from other business units 22 988 1,010 3,686 -

Due from other funds 16,134 39 3,723 7,376 338 27,610 -

Materials and supplies 101,550 101,550 101,550

Prepayments and other 1,234 60 2 30 7 1,333 66 1,399

175,397 2,292 12,634 11,588 2,429 453 204,793 30,455 202,942

DEFERRED CHARGES

Costs in excess of billings 681,202 1,965,219 1,828,338 4,474,759 4,474,759

Unamortized debt expense 13,255 12,454 10,254 2,960 38,923 38,923

Other deferred charges 2,387 2,387 2,387

694,457 2,387 1,977,673 1,838,592 - 2,960 4,516,069 - 4,516,069

TOTAL ASSETS $ 2,654,924 $ 6,348 $ 2,048,439 $ 1,890,972 $ 3,163 $ 148,357 $ 6,752,203 $ 43,232 $ 6,762,699

*Project recorded on a liquidation basis See notes to financial statements


BALANCE SHEETS (CONT’D) As of June 30, 2007 (Dollars in Thousands)

Columbia Generating




No.3*




2007 Combined

Total

Fund Equity and Liabilities

FUND EQUITY

Invested in capital assets, net of related debt $ - $ - $ - $ - $ 734 $ (87,812) $ (87,078) $ 11,014 $ (76,064)

Restricted, net 70,836 70,836 1,399 72,235

Unrestricted, net 649 (945) (296) (3,542) (3,838)

- - - - 1,383 (17,921) (16,538) 8,871 (7,667)

LONG-TERm DEBT (NOTE E)

Revenue bonds payable 2,327,420 1,241 1,938,640 1,909,430 152,750 6,329,481 6,329,481

Unamortized (discount)/premium on bonds - net 88,223 (1) 81,295 (38,511) 6,148 137,154 137,154

Unamortized gain/(loss) on bond refundings (23,690) 18 (43,688) (18,075) (2,103) (87,538) (87,538)

2,391,953 1,258 1,976,247 1,852,844 - 156,795 6,379,097 - 6,379,097

LIABILITIES- PAYABLE FROmRESTRICTED ASSETS (NOTE B)

Special funds

Accounts payable and accrued expenses 107,358 13,787 598 121,743 363 122,106

Due to other funds 15,875 14 4,019 7,510 338 27,756 -

Debt service funds -

Accrued interest payable 49,797 23 41,394 29,980 3,768 124,962 124,962

Due to other funds 259 25 284 -

173,289 62 59,200 37,490 - 4,704 274,745 363 247,068

OTHER NONCURRENT LIABILITIES 27,557 - - - - - 27,557 - 27,557

CURRENT LIABILITIES

Current maturities of long-term debt 4,280 660 9,160 3,380 17,480 17,480

Accounts payable andaccrued expenses 47,550 374 1,392 427 1,780 622 52,145 32,289 84,434

Due to Participants 7,667 1,483 2,440 11,590 11,590

Due to other business units 2,628 70 211 777 3,686 1,010

62,125 2,587 12,992 638 1,780 4,779 84,901 33,299 113,504

DEFERRED CREDITS

Advances from Members and others 37 37

Other deferred credits 2,441 2,441 662 3,103

- 2,441 - - - - 2,441 699 3,140

TOTAL LIABILITIES 2,654,924 6,348 2,048,439 1,890,972 1,780 166,278 6,768,741 34,361 6,770,366

TOTAL FUND EQUITY AND LIABILITIES

$ 2,654,924 $ 6,348 $ 2,048,439 $ 1,890,972 $ 3,163 $ 148,357 $ 6,752,203 $ 43,232 $ 6,762,699



STATEmENTS OF OPERATIONS AND FUND EQUITY For the year ended June 30, 2007 (Dollars in Thousands)

Columbia Generating




No.3*




2007 Combined

Total

OPERATING REVENUES $ 436,972 $ 1,323 $ - $ - $ 7,615 $ 6,492 $ 452,402 $ - $ 452,402

OPERATING ExPENSES

Nuclear fuel 25,318 25,318 25,318

Spent fuel disposal fee 7,634 7,634 7,634

Decommissioning 5,885 55 5,940 5,940

Depreciation and amortization 74,678 34 196 3,642 78,550 78,550

Operations and maintenance 198,717 1,071 11,668 3,448 214,904 214,904

Other power supply expense 58 58 58

Administrative and general 20,436 205 47 20,688 20,688

Generation tax 2,529 20 34 2,583 2,583

TOTAL OPERATING ExPENSES 335,197 1,388 - - 11,864 7,226 355,675 - 355,675

NET OPERATING REVENUES (ExPENSES) 101,775 (65) - - (4,249) (734) 96,727 - 96,727

OTHER INCOmE AND ExPENSE

Non-operating revenues 113,381 97,499 210,880 52,895 211,278

Investment income 8,070 144 1,909 2,191 92 623 13,029 532 13,029

Interest expense and discount amortization (122,518) (79) (114,218) (97,773) (6,069) (340,657) (340,657)

Plant preservation and termination costs (4,695) (1,917) (6,612) (6,612)

Depreciation and amortization (18) (18) (2,043) (18)

Decommissioning (540) (540) (540)

Services to other business units (50,986)

Other 12,673 4,181 1,530 18,384 18,384

TOTAL OTHER INCOmE AND ExPENSES (101,775) 65 - - 1,622 (5,446) (105,534) 398 (105,136)

NET REVENUES (ExPENSES) - - - - (2,627) (6,180) (8,807) 398 (8,409)

Distribution and Contributions - - - - 1,800 596 2,396 (1,625) 771

Beginning Fund Equity - - - - 2,210 (12,337) (10,127) 10,098 (29)

ENDING FUND EQUITY $ - $ - $ - $ - $ 1,383 $ (17,921) $ (16,538) $ 8,871 $ (7,667)



STATEmENTS OF CASH FLOWS For the year ended June 30, 2007 (Dollars in Thousands)

Columbia Generating




No.3*


FundNine Canyon Wind Project


2007 Combined Total

CASH FLOWS FROm OPERATING AND OTHER ACTIVITIES

Operating revenue receipts $ 416,768 $ 3,297 $ - $ - $ 3,836 $ 6,492 $ - $ 430,393

Cash payments for operating expenses (221,013) (1,115) (4,102) (1,496) (227,726)

Non-operating revenue receipts 93,480 67,875 161,355

Cash payments for preservation, termination expense (3,933) (59) (3,992)

Cash payments for services (3,007) (3,007)

Net cash provided/(used) by operating and other activities 195,755 2,182 89,547 67,816 (266) 4,996 (3,007) 357,023

CASH FLOWS FROm CAPITAL AND RELATED FINANCING ACTIVITIES

Proceeds from bond refundings 132,555 299,965 159,324 72,554 664,398

Refunded bond escrow requirement (85,611) (299,854) (159,265) (544,730)

Payment for bond issuance and financing costs (1,330) (43) (4,519) (3,001) (2) (1,445) (10,340)

Capital (49,891) (980) (180) (11,218) 539 (61,730)

Receipts from sales of plant assets 5,368 3,385 8,753

Nuclear fuel acquisitions (87,788) (87,788)

Interest paid on revenue bonds (116,747) (90) (95,473) (75,210) (4,180) (291,700)

Principal paid on revenue bond maturities (644) (3,240) (3,884)

Interest paid on Notes (1,321) (307) (911) (2,539)

Net cash provided/(used) by capital and related financing activities (204,765) (1,757) (96,803) (79,063) (182) 52,471 539 (329,560)

CASH FLOWS FROm NON-CAPITAL FINANCE ACTIVITIES - - - - - - - -

CASH FLOWS FROm INVESTINGACTIVITIES

Purchases of investment securities (878,738) (8,233) (264,753) (224,180) (8,069) (295,391) (62,214) (1,741,578)

Sales of investment securities 894,134 8,086 248,772 232,302 8,451 237,370 64,205 1,693,320

Interest on investments 8,759 137 2,324 2,379 90 2,111 1,519 17,319

Net cash provided/(used) by investing activities 24,155 (10) (13,657) 10,501 472 (55,910) 3,510 (30,939)

NET INCREASE (DECREASE) IN CASH 15,145 415 (20,913) (746) 24 1,557 1,042 (3,476)

CASH AT JUNE 30, 2006 63,258 15 22,271 2,306 29 5,702 914 94,495

CASH AT JUNE 30, 2007 (NOTE B) $ 78,403 $ 430 $ 1,358 $ 1,560 $ 53 $ 7,259 $ 1,956 $ 91,019



STATEmENTS OF CASH FLOWS (CONT’D) For the year ended June 30, 2007 (Dollars in Thousands)

Columbia Generating




No.3*


FundNine Canyon Wind Project


2007 Combined Total

RECONCILIATION OF NET OPERATING REVENUES TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES

Net operating revenues (expenses) $ 101,775 $ (65) $ - $ - $ (4,249) $ (734) $ - $ 96,727

Adjustments to reconcile net operating revenues to cash provided by operating activities:

Depreciation and amortization 97,714 25 73 3,628 101,440

Decommissioning 5,885 22 5,907

Other 7,404 1,023 1,522 41 9,990

Change in operating assets and liabilities:

Deferred charges/costs in excess of billings (20,204) (22) (20,226)

Accounts receivable 2,468 160 647 3,275

Materials and supplies (17,370) 226 (17,144)

Prepaid and other assets (19) 21 37 (3) 36

Due from/to other business units, funds and Participants 8,355 916 (421) 491 9,341

Accounts payable 9,747 124 325 321 10,517

Non-operating revenue receipts 93,480 67,875 161,355

Cash payments for preservation, termination expense (3,933) (59) (3,992)

Cash payments for services (3,007) (3,007)

Receipts for grants/contributions 1,800 1,004 2,804

Net cash provided (used) by operating and other activities $ 195,755 $ 2,182 $ 89,547 $ 67,816 $ (266) $ 4,996 $ (3,007) $ 357,023



Energy northwestnotes to Financial StatementsNOTE A - GENERAL

OrganizationEnergy Northwest, a municipal corporation and joint operating agency of the State of Washington, was organized in 1957. It is empowered to finance, acquire, construct and operate facilities for the generation and transmission of electric power. On June 30, 2007, its membership consisted of 17 public utility districts and three cities, Richland, Seattle and Tacoma. All members own and operate electric systems within the State of Washington. Energy Northwest is exempt from federal income tax. Energy Northwest has no taxing authority.

Energy Northwest Business UnitsEach Energy Northwest Business Unit is financed and accounted for separate from all other current or future Business Units.

All electrical energy produced by Energy Northwest net-billed Business Units is ultimately delivered to electrical distribution facilities owned and operated by Bonneville Power Admin-istration (BPa) as part of the Federal Columbia River Power System. BPA in turn distributes the electricity to electric utility systems throughout the Northwest, including Participants in Energy Northwest’s Business Units, for ultimate dis-tribution to consumers. Participants in Energy Northwest’s net-billed Business Units consist of publicly owned utilities and rural electric coop-eratives located in the western United States who have entered into net-billing agreements with Energy Northwest and BPa for participation in one or more of Energy Northwest’s Business

Units. BPA is obligated by law to establish rates for electric power which will recover the cost of electric energy acquired from Energy Northwest and other sources as well as BPa’s other costs (see Note E).

Energy Northwest operates the Columbia Generating Station (Columbia), a 1,157 MWe (Design Electric Rating, net) generating plant completed in 1984. Energy Northwest has obtained all permits and licenses required to operate Columbia, including a Nuclear Regula-tory Commission (nrC) operating license that expires in December 2023.

Energy Northwest also operates the Pack-wood Lake Hydroelectric Project (Packwood), a 27.5 MWe generating plant completed in 1964. Packwood operates under a fifty-year license from the Federal Energy Regulatory Commission (ferC) that expires on February 28, 2010. The electric power produced by Packwood is sold to 12 Project Participant utilities which pay the costs of Packwood, including the debt service on the Packwood revenue bonds. The Packwood Partici-pants are obligated to pay annual costs of Pack-wood including debt service, whether or not Pack-wood is operable, until the outstanding bonds are paid or provisions are made for bond retirement, in accordance with the requirements of the bond resolution. The Participants share Packwood rev-enue as well. In 2002, Packwood and its partici-pants entered into a Power Sales Agreement with Benton and Franklin Puds to guarantee a speci-fied level of power generation from the Packwood


project (see Note E, “Security-Packwood Lake Hydroelectric Project”).

Nuclear Project No. 1, a 1,250 MWe plant, was placed in extended construction delay status in 1982, when it was 65 percent complete. Nuclear Project No. 3, a 1,240 MWe plant, was placed in extended construction delay status in 1983, when it was 75 percent complete. On May 13, 1994, Energy Northwest’s Board of Directors adopted resolutions terminating Nuclear Proj-ects Nos. 1 and 3 (see Note F, “Nuclear Projects Nos. 1 and 3 Termination”). All funding require-ments remain as net-billed obligations of Nuclear Projects Nos. 1 and 3. Energy Northwest wholly owns Nuclear Project No. 1. Energy Northwest is no longer responsible for site restoration costs for Nuclear Project No. 3 (see Note F, Commitments and Contingencies).

Energy Northwest also manages the Busi-ness Development Fund and the Nine Canyon Wind Project (Nine Canyon):

The Business Development Fund was estab- �lished in April 1997 to pursue and develop new energy related business opportunities.

Nine Canyon was established in January 2001 �for the purpose of exploring and establishing a wind energy project. Phase i of the project was completed in Fiscal Year (fY) 2003. Phase i of Nine Canyon consists of turbines which have a capacity of 48.1 MWe. Phase ii of Nine Canyon consists of turbines which have a ca-pacity of 15.6 MWe. The total Nine Canyon generating capability for Phase i and ii is ap-proximately 63.7 MWe. Phase iii of Nine Can-yon is currently under construction and will consist of an additional 14 wind turbines with an aggregate capacity of approximately 32.2 MWe. Phase iii is scheduled for commercial operation in February 2008.

The Internal Service Fund was established in May 1957. It is currently used to account for the central procurement of certain common goods and services for the Business Units on a cost reimbursement basis.

NOTE B - SUmmARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of AccountingEnergy Northwest has adopted accounting poli-cies and principles that are in accordance with Generally Accepted Accounting Principles (GaaP) in the United States of America. Energy Northwest applies Financial Accounting Standards Board (fasB) standards to the extent it does not conflict with Governmental Accounting Standards Board (GasB) standards. Accounts are maintained in accordance with the uniform system of accounts of the ferC. Energy Northwest uses the full accrual basis of accounting where revenues are recognized when earned and expenses recog-nized when incurred. Revenues and expenses related to principal operations are considered to be operating revenues and expenses; while reve-nues and expenses related to capital, financing and investing activities are considered to be non-operating revenues and expenses. Separate funds and books of account are maintained for each Business Unit. Payment of obligations of one Business Unit with funds of another Business Unit is prohibited, and would constitute violation of bond resolution covenants.

Energy Northwest maintains an Internal Ser-vice Fund for centralized control and accounting of certain capital assets such as data processing equipment, and for payment and accounting of internal services, payroll, benefits, administra-tive and general expenses, and certain contracted services on a cost reimbursement basis. Certain assets in the Internal Service Fund are also owned


by this Fund and operated for the benefit of other Projects. Depreciation relating to capital assets is charged to the appropriate Business Units based upon assets held by each Project.

Liabilities of the Internal Service Fund repre-sent accrued payroll, vacation pay, employee ben-efits, and common accounts payable which have been charged directly or indirectly to Business Units and will be funded by the Business Units when paid. Net amounts owed to or from Energy Northwest Business Units are recorded under Current Liabilities–Due to other Business Units, or Current Assets–Due from other Business Units on the Internal Service Fund Balance Sheet.

The Combined Total column on the finan-cial statements is for presentation only as each Energy Northwest Business Unit is financed and accounted for separately from all other current and future Business Units. The fY 2007 Com-bined Total includes eliminations for transac-tions between Business Units as required in Statement No. 34, “Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments,” of the Govern-mental Accounting Standards Board (GasB).

Pursuant to GasB Statement No. 20, “Accounting and Financial Reporting for Propri-etary Funds and Other Governmental Entities That Use Proprietary Fund Accounting,” Energy Northwest has elected to apply all fasB state-ments and interpretations, except for those that conflict with, or contradict, GasB pronounce-ments. Specifically, GasB No. 7, “Advance Refund-ings Resulting in Defeasance of Debt,” and GasB No. 23, “Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities,” conflict with Statement of Financial Accounting Standard (sfas) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” As such, the guidance under GasB No. 7 and No. 23 is fol-lowed. Such guidance governs the accounting for bond defeasances and refundings. The prepara-tion of Energy Northwest financial statements

in conformity with GaaP requires management to make estimates and assumptions that directly affect the reported amounts of assets and liabili-ties, disclosures of contingent assets and liabili-ties at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Certain incurred expenses and revenues are allocated to the Busi-ness Units based on specific allocation methods that management considers to be reasonable.

Energy Northwest’s fiscal year begins on July 1st and ends on June 30th.

Utility PlantUtility plant is stated at original cost. Plant in service is depreciated by the straight-line method over the estimated useful lives of the various classes of plant, which range from five to 60 years.

During the normal construction phase of a Capital Facility, which historically has been defined as construction of a generation facility, Energy Northwest’s policy is to capitalize all costs relating to the Project, including interest expense, related administrative and general expense, less any interest income earned. For financing not related to a Capital Facility, Energy Northwest analyzes the gross interest expense relating to the cost of the bond sale, taking into account interest earnings and draws for purchase or construction reimbursements for the purpose of analyzing impact to the recording of capital-ized interest. Columbia is a net-billed business unit, therefore costs whether expense or capital, are reimbursed each year. However, if estimated costs are more than inconsequential, an adjust-ment will be made to allocate capitalized interest to the appropriate plant account. Nine Canyon is currently constructing Phase III of the generation project and capitalized $1.71 million of interest costs to construction work in progress.

The utility plant and net assets of Nuclear Projects Nos. 1 and 3 have been reduced to their


estimated net realizable values due to termina-tion. A write-down of Nuclear Projects Nos. 1 and 3 was recorded in fY 1995 and was included in Cost in Excess of Billings. Interest expense, ter-mination expenses and asset disposition costs for Nuclear Projects Nos. 1 and 3 have been charged to operations. Utility Plant activity for the year ended June 30, 2007, was as follows:

Nuclear FuelAll expenditures related to the initial purchase of nuclear fuel for Columbia, including interest, were capitalized and carried at cost. Fuel expen-ditures relating to the use of funds from the Series 2005-C Bonds for purchases of nuclear fuel were capitalized and carried at cost. When the fuel is placed in the reactor, the fuel cost is

UTILITY PLANT ACTIVITY (Dollars in Thousands)

Beginning Balance Increases Decreases Ending Balance

Columbia Generating Station

Generation $ 3,497,075 $ 50,194 $ (1,520) $ 3,545,749

Decommissioning 32,469 32,469

Construction Work-in-Progress 22,161 51,381 (46,543) 26,999

Accumulated Depreciation (2,102,609) (73,346) 1,202 (2,174,753)

UTILITY PLANT, net* $ 1,449,096 $ 28,229 $ (46,861) $ 1,430,464

Packwood Lake Hydroelectric Project

Generation $ 12,991 $ 107 $ - $ 13,098

Accumulated Depreciation (12,466) (26) - (12,492)

UTILITY PLANT, net $ 525 $ 81 $ - $ 606


Generation $ 1,039 $ 191 $ - $ 1,230

Construction Work-in-Progress - - - -

Accumulated Depreciation (422) (74) - (496)

UTILITY PLANT, net $ 617 $ 117 $ - $ 734

Nine Canyon Wind Project

Generation $ 73,617 $ 221 $ (19) $ 73,819

Decommissioning 449 - - 449

Construction Work-in-Progress - 11,177 - 11,177

Accumulated Depreciation (12,392) (3,649) - (16,041)

UTILITY PLANT, net $ 61,674 $ 7,749 $ (19) $ 69,404


Generation $ 46,631 $ 134 $ - $ 46,765

Construction Work-in-Progress 0 - -

Accumulated Depreciation (33,708) (2,043) - (35,751)

UTILITY PLANT, net $ 12,923 $ (1,909) $ - $ 11,014

*Does not include Nuclear Fuel Amount of $236 million, net of amortization.


amortized to operating expense on the basis of quantity of heat produced for generation of elec-tric energy. Accumulated nuclear fuel amortiza-tion (the amortization of the cost of nuclear fuel assemblies in the reactor used in the production of energy and in the fuel pool for less than six months per ferC guidelines) is $117.1 million as of June 30, 2007, for Columbia.

Energy Northwest has a contract with the Department of Energy (dOe) that requires the dOe to accept title and dispose of spent nuclear fuel. Although the courts have ruled that the dOe had the obligation to accept title to spent nuclear fuel by January 31, 1998, the repository is not expected to be in operation before 2017.

The current period operating expense for Columbia includes a $7.6 million charge from the dOe for future spent nuclear fuel storage and disposal in accordance with the Nuclear Waste Policy Act of 1982.

Energy Northwest has completed the Inde-pendent Spent Fuel Storage Installation (isfsi) project, which is a temporary dry cask storage until the dOe completes its plan for a national repository. isfsi will store the spent fuel in com-mercially available dry storage casks on a con-crete pad at the Columbia site. Spent Fuel will be transferred from the Spent Fuel pool to the isfsi periodically to allow for future refuelings. Cur-rent period operating costs include $24.2 million for nuclear fuel and $1.1 million dry cask storage costs.

Restricted AssetsSeparate restricted funds have been established for each Business Unit, in accordance with Project bond resolutions, related agreements or state law. The assets held in these funds are restricted for specific uses including construction, debt service, capital additions and fuel purchases, extraordinary operation and maintenance costs, termination, decommissioning, hazardous waste disposal, operating reserves, financing, long-term disability and workers’ compensation claims.

Long-Term ReceivablesLong-term receivables include an estimate of future discounts for certain goods and services to be provided to Columbia. These amounts are the result of a litigation settlement and subsequent revisions of that settlement.

Accounts and Other ReceivablesAccounts and other receivables for the Internal Service Fund include miscellaneous receivables outstanding from other Business Units that have not yet been collected. The amounts due to each Business Unit are reflected in the Due To/From other Business Units account. Accounts and other receivables specific to each Business Unit are recorded in the residing Business Unit.

Asset Retirement ObligationEnergy Northwest adopted sfas No. 143, “Accounting for Obligations Associated with the Retirement of Long Lived Asset,” on July 1, 2002. sfas 143 requires an entity to recognize the fair value of a liability for an asset retirement obliga-tion (arO), such as nuclear decommissioning and site restoration liabilities, in the period in which it is incurred, rather than using a cost accumula-tion approach (see Note G, Accounting for Asset Retirement Obligations).

Decommissioning and Site RestorationEnergy Northwest established decommissioning and site restoration funds for Columbia and monies are being deposited each year in accor-dance with an established funding plan.

The nrC has issued rules to provide guid-ance to licensees of operating nuclear plants on decommissioning the plants at the end of each plant’s operating life. In September 1998, the nrC approved and published its “Final Rule on Finan-cial Assurance Requirements for Decommis-sioning Power Reactors.” As provided in this rule, each power reactor licensee is required to report to the nrC the status of its decommissioning


funding for each reactor or share of a reactor it owns. This reporting requirement began on March 31, 1999, and reports are required every two years thereafter. Energy Northwest submitted its most recent report to the nrC in March 2007.

Energy Northwest’s current estimate of Columbia’s decommissioning costs in 2007 dol-lars is $573.2 million (Columbia-$570.0 million and isfsi-$3.2 million). This estimate, which is updated biannually, is based on the nrC min-imum amount required to demonstrate rea-sonable financial assurance for a boiling water reactor with the power level of Columbia.

Site restoration requirements for Columbia are governed by the site certification agreements between Energy Northwest and the State of Wash-ington and by regulations adopted by the Wash-ington Energy Facility Site Evaluation Council (efseC). Energy Northwest submitted a site res-toration plan for Columbia that was approved by the efseC on June 12, 1995. Energy Northwest’s current estimate of Columbia’s site restoration costs is $80.6 million in constant dollars (based on 2007 Study) and is updated biannually along with the decommissioning estimate.

Both decommissioning and site restora-tion estimates (based on 2007 Study) are used as the basis for establishing a funding plan that includes escalation and interest earnings until decommissioning activities occur. Payments to the decommissioning and site restoration funds have been made since January 1985. The fair value of cash and investment securities in the decommissioning and site restoration funds as of June 30, 2007, totaled approximately $118.1 mil-lion and $16.1 million, respectively. Since Sep-tember 1996, these amounts have been held and managed by BPa in external trust funds in accor-dance with nrC requirements and site certifica-tion agreements; the balances in these external trust funds are not reflected on Energy North-west’s Balance Sheet.

materials and SuppliesMaterials and supplies are valued at cost using a weighted average cost method.

Financing Expense, Bond Discount and Deferred Gain and LossesFinancing expenses and bond discounts are amortized over the terms of the respective bond issues using the bonds outstanding method which Energy Northwest has determined to not be materially different from the effective interest method of bond accounting.

In accordance with GasB No. 23, losses on debt refundings have been deferred and amor-tized as a component of interest expense over the shorter of the remaining life of the old or new debt. The balance sheet includes the original deferred amount less recognized amortization expense and is included as a reduction to the new debt.

Current maturities of Revenue BondsCurrent maturities (less than one year) of revenue bonds payable from restricted assets are reflected as current maturities. Debt with maturities greater than one year is reflected as Long-Term Debt.

Accounts Payable and Accrued ExpensesLiabilities-Payable From Restricted Assets-Columbia includes $107.4 million for decom-missioning and site restoration. Nuclear Project No. 1 includes $13.8 million for decommissioning and site restoration. Nine Canyon includes $0.6 million for decommissioning and site restora-tion. The other large amount of payables from restricted assets relate to accrued interest payable. There was $125.0 million accrued amongst the five business units (none for the Internal Service Fund) for this item.

Current Liabilities-Internal Service Fund accounts payable and accrued expenses include $6.3 million for payroll and related benefits, $17.2


million for compensated absences, and $8.8 mil-lion for outstanding warrants, taxes, and reten-tion withheld. Other Business Unit accrued costs accounted for the other $52.1 million and repre-sents general Business Unit activity.

Other Non Current Liabilities—The $27.6 million is the Columbia deferred cask liability which relates to the storage and disposal of spent fuel.

Fair Value of Financial InstrumentsThe fair value of financial instruments has been estimated using available market information and certain assumptions. Considerable judgment is required in interpreting market data to develop fair value estimates and such estimates are not necessarily indicative of the amounts that could be realized in a current market exchange.

Financial instruments for which the car-rying value is considered a reasonable approxi-mation of fair value include: cash, accounts and other receivables, accounts payable and accrued expenses, advances from Members and others, and Due To/From Participants, funds, and other Business Units. The fair values of investments (see Note C, Cash and Investments) and revenue bonds payable (see Note E, Long-Term Debt) have been estimated based on quoted market prices for such instruments or on the fair market value of financial instruments of a similar nature and degree of risk.

RevenuesEnergy Northwest accounts for expenses on an accrual basis, and recovers, through various agreements, actual cash requirements for opera-tions and debt service for Columbia, Packwood, Nuclear Project No. 1 and Nuclear Project No. 3. For these Business Units, Energy Northwest recognizes revenues equal to expenses for each period. No net revenue or loss is recognized, and no equity is accumulated. The difference between cumulative billings received and cumulative

expenses is recorded as either billings in excess of costs (liability) or costs in excess of billings (asset), as appropriate. Such amounts will be settled during future operating periods.

Energy Northwest accounts for revenues and expenses on an accrual basis for the remaining Business Units. The difference between cumu-lative revenues and cumulative expenses is rec-ognized as net revenue or losses and included in fund equity for each period.

Energy Northwest has accrued, as income (contribution) from the dOe, Renewable Energy Performance Incentive (rePi) payments that enable Nine Canyon to receive funds based on generation as it applies to the rePi bill. The rePi was created as part of the Energy Policy Act of 1992 to promote increases in the generation and utilization of electricity from renewable energy sources and to further the advances of renewable energy technologies.

This program, authorized under section 1212 of the Energy Policy Act of 1992, provides financial incentive payments for electricity produced and sold by new qualifying renewable energy genera-tion facilities. Nine Canyon recorded a receivable for 27 percent of the applied rePi funding in the amount of $0.8 million for fY 2007, representing its share of funded amounts. The payment stream from Nine Canyon participants and the rePi receipts were projected to cover the total costs over the purchase agreement. Permanent short-falls in rePi funding will lead to future increases in the billing of the Nine Canyon participants in order to cover total Project costs.

Concentration of Credit RiskFinancial instruments which potentially subject Energy Northwest to concentrations of credit risk consist of available-for-sale investments, accounts receivable, other receivables, long-term receivables and costs in excess of billings. Energy Northwest invests exclusively in U.S. Government securities and agencies. Energy Northwest’s accounts receivable and costs in excess of billings


AVAILABLE-FOR-SALE-INVESTmENTS (Dollars in Thousands)

Amortized Cost Unrealized Gains Unrealized Losses Fair Value (1) (2)

Columbia Generating Station $ 95,135 $ - $ (37) $ 95,098

Packwood Lake Hydroelectric Project 2,592 1 - 2,593

Nuclear Project No. 1 63,797 - (19) 63,778

Nuclear Project No. 3 43,323 - (13) 43,310

Business Development Fund 1,081 - - 1,081

Internal Service Fund 26,460 - (11) 26,449

Nine Canyon Wind Project 67,628 - (29) 67,599

(1) All investments are in U.S. Government Agencies with the exception of Packwood which holds only U.S. Government Treasury Bills.

(2) All investments have maturities of less than 1 year.

are concentrated with Project Participants and BPa through the net-billing agreements (see Note E, Long-Term Debt, “Security-Nuclear Projects Nos. 1, 3 and Columbia” and “Security - Packwood Lake Hydroelectric Project”). The long-term receivable is with a large and stable company which Energy Northwest considers to be of low credit risk. Other large receivables are secured through the use of letters of credit and other similar security mechanisms or are with large and stable companies which Energy Northwest considers to be of low credit risk. As a consequence, Energy Northwest considers the exposure of the Business Units to concentration of credit risk to be limited.

Statements of Cash FlowsFor purposes of the statements of cash flows, cash includes unrestricted and restricted cash balances. Short-term, highly liquid investments are not considered cash equivalents but are clas-sified as available for sale investments.

NOTE C - CASH AND INVESTmENTS

Cash and investments for each Business Unit are separately maintained. Energy Northwest’s deposits are insured by federal depository insur-ance or through the Washington Public Deposit Protection Commission. Energy Northwest reso-lutions and investment policies limit investment authority to obligations of the United States Trea-sury, Federal National Mortgage Association and Federal Home Loan Banks. Safekeeping agents, custodians, or trustees hold all investments for the benefit of the individual Energy Northwest Busi-ness Units.

Investments are classified as available-for- sale and are stated at fair value with unrealized gains and losses reported in investment income. Available-for-sale investments at June 30, 2007, are categorized below to give an indication of the types and amounts as well as maturities of investments held by each Business Unit at year end:


NOTE D - RETIREmENT BENEFITS

Substantially all Energy Northwest full-time and qualifying part-time employees participate in one of the following statewide retirement systems administered by the Washington State Department of Retirement Systems, under cost- sharing multiple-employer public employee defined benefit and defined contribution retirement plans. The Department of Retirement Systems (drs), a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report (Cafr) that includes financial statements and required supplementary information for each plan. The drs Cafr may be obtained by writing to: Department of Retirements Systems, Communications Unit, P.O. Box 48380, Olympia, Wa 98504–8380. The following disclosures are made pursuant to GasB Statement No. 27, “Accounting for Pensions by State and Local Government Employers.”

Public Employee’s Retirement System (PERS) Plans 1, 2, and 3 Plan DescriptionPers is a cost-sharing multiple-employer retire-ment system comprised of three separate plans for membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a combination defined benefit/defined contribution plan. Membership in the system includes: elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges in a judi-cial retirement system); employees of legislative committees; college and university employees not in national higher education retirement programs; judges of district and municipal courts; and employees of local government, including Energy Northwest. Participants who joined the system by September 30, 1977, are Plan 1 members. Those who joined on or after October 1, 1977, and by either, February 28, 2002, for state and higher education employees, or August 31, 2002, for local government employees, are Plan 2 members

unless they exercise an option to transfer their membership to Plan 3. PERS participants joining the system on or after March 1, 2002, for state and higher education employees, or September 1, 2002, for local government employees have the irrevocable option of choosing membership in either Pers Plan 2 or Pers Plan 3. The option must be exercised within 90 days of employment. An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to Pers Plan 3. Pers defined benefit retirement benefits are financed from a combina-tion of investment earnings and employer and employee contributions. Pers retirement benefit provisions are established in state statute and may be amended only by the State Legislature.

Plan 1 retirement benefits are vested after an employee completes five years of eligible service. Plan 1 members are eligible for retirement at any age after 30 years of service, or at the age of 60 with five years of service, or at the age of 55 with 25 years of service. The annual benefit is 2 percent of the average final compensation per year of service, capped at 60 percent. The average final compensation is based on the greatest compensation during any 24 eligible consecutive compensation months. If qualified, after reaching the age of 66 a cost-of-living allowance is granted based on years of service credit and is capped at 3 percent annually.

Plan 2 retirement benefits are vested after an employee completes five years of eligible service. Plan 2 members may retire at the age of 65 with five years of service, or at the age of 55 with 20 years of service, with an allowance of 2 percent of the average final compensation per year of service. The average final compensation is based on the greatest compensation during any eligible consecutive 60-month period. Plan 2 retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a 3 percent per year reduction applies; otherwise an actuarial reduction will apply. There is no cap on years of service credit; and a cost-of-living allowance is granted (indexed to


the Seattle Consumer Price Index), capped at 3 per-cent annually.

Plan 3 has a dual benefit structure. Employer contributions finance a defined benefit component, and member contributions finance a defined contri-bution component. The defined benefit portion pro-vides a benefit calculated at 1 percent of the average final compensation per year of service. The average final compensation is based on the greatest com-pensation during any eligible consecutive 60-month period. Effective June 7, 2006, Plan 3 members are vested in the defined benefit portion of their plan after ten years of service; or after five years if twelve months of that service are earned after age 44; or after five service credit years earned in Pers Plan 2 prior to June 1, 2003. Plan 3 members are imme-diately vested in the defined contribution portion of their plan. Vested Plan 3 members are eligible to retire with full benefits at age 65, or at age 55 with 10 years of service. Retirements prior to the age of 65 receive reduced benefits. If retirement is at age 55 or older with at least 30 years of service, a 3 percent per year reduction applies; otherwise an actuarial reduc-tion will apply. The benefit is also actuarially reduced to reflect the choice of a survivor option. There is no cap on years of service credit; and Plan 3 provides the same cost-of-living allowance as Plan 2. The defined contribution portion can be distributed in accor-dance with an option selected by the member, either as a lump sum or pursuant to other options autho-rized by the Employee Retirement Benefits Board.

There are 1,181 participating employers in Pers. Membership in Pers consisted of the following as of the latest actuarial valuation date for the plans of September 30, 2005:

Retirees and Beneficiaries Receiving Benefits 68,609

Terminated Plan Members Entitled to But Not Yet Receiving Benefits

22,567

Active Plan Members Vested 104,574

Active Plan Members Nonvested 51,004

Total 246,754

Funding PolicyEach biennium, the state Pension Funding Council adopts Plan 1 employer contribution rates, Plan 2 employer and employee contribution rates, and Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at 6 percent for state agencies and local government unit employees, and 7.5 percent for state government elected officers. The employer and employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. All employers are required to contribute at the level established by the Legislature. Under Pers Plan 3, employer contributions finance the defined benefit portion of the plan, and member contributions finance the defined contribution portion. The Employee Retirement Benefits Board sets Plan 3 employee contribution rates. Six rate options are available ranging from 5 to 15 percent; two of the options are graduated rates dependent on the employee’s age. The methods used to determine the contribution requirements are established under state statute in accordance with chapters 41.40 and 41.45 RCW.

The required contribution rates for the defined benefit plan expressed as a percentage of current year covered payroll, as of June 30, 2007, were:

PERS Plan 1 PERS Plan 2 PERS Plan 3

Employer* 5.46% 5.46% 5.46%**

Employee 6.00% 3.50% ***

*The employer rates include the employer administrative expense fee currently set at 0.18%. This rate reflects the change effective December 31, 2006. Previous to this period the rate was 0.19%.

**Plan 3 defined benefit portion only.

***Variable from 5.0% minimum to 15.0% maximum based on rate selected by PERS 3 member.


Both Energy Northwest and the employees make the required contributions. The required employer contribution increased January 1, 2007, from 3.69 percent for all plans to the current level of 5.46 percent. For fY 2005 and fY 2006 the rates ranged from 1.38 percent to 2.44 percent. Energy Northwest’s required contributions for the years ended June 30 was:

PERS Plan 1 PERS Plan 2 PERS Plan 3

2007 $ 174,813 $ 3,235,922 $ 1,269,321

2006 $ 107,096 $ 1,458,655 $ 564,242

2005 $ 86,067 $ 958,601 $ 364,653

In addition to the pension benefits available through Pers, Energy Northwest offers post- employment life insurance benefits to retirees who are eligible to receive pensions under Pers Plan 1, Plan 2, and Plan 3. Ninety-seven retirees have elected to participate in this insurance. In 1994, Energy Northwest’s Executive Board approved provisions which continued the life insurance benefit to retirees at 25 percent of the premium for employees who retire prior to Jan-uary 1, 1995, and charged the full 100 percent pre-mium to employees who retired after December 31, 1994. The life insurance benefit is equal to the employee’s annual rate of salary at retirement for non-bargaining employees retiring prior to Jan-uary 1, 1995. The cost of coverage for employees who retired after January 1, 1995, is $2.33 per $1,000 of coverage with a maximum limit of $10,000. Employees who retired prior to January 1, 1995, contribute $.58 per $1,000 of coverage while Energy Northwest pays the remainder. Premiums are paid to the insurer on a current period basis.

At the time each employee retires, Energy Northwest accrues a liability for the actuarial value of estimated future premiums, net of retiree contributions. The total liability recorded at June 30, 2007, was $0.7 million for these benefits.

During fY 2007, pension costs for Energy Northwest employees and post-employment life insurance benefit costs for retirees were calcu-lated and allocated to each Business Unit based on direct labor dollars. This allocation basis resulted in the following percentages by Business Unit for fY 2007 for this and other allocated costs; Columbia at 92 percent, Business Development at 6 percent, and Project 1, Nine Canyon, Packwood and Project 3 receiving the residual amount of 2 percent.

401(k) and 457 Plan Deferred Compensation PlanEnergy Northwest provides a 401(k) Deferred Compensation Plan (401(k) Plan), and a 457 Deferred Compensation Plan. Both Plans are defined contribution plans that were established to provide a means for investing savings by employees for retirement purposes. All perma-nent, full-time employees are eligible to enroll in the Plans. Participants are immediately vested in their contributions and direct the investment of their contribution. Each participant may elect to contribute pre-tax annual compensation, subject to current Internal Revenue Service limitations. For the 401(k) Plan, Energy Northwest may elect to make an Employer matching contribution for each of its Employees who are a Participant during the Plan Year. The amount of such an Employer match shall be 50 percent of the maximum salary deferral percentage. During fY 2007 Energy Northwest contributed $2.0 million in employer matching funds.

NOTE E - LONG-TERm DEBT

Each Energy Northwest Business Unit is financed separately. The resolutions of Energy Northwest authorizing issuance of revenue bonds for each Business Unit provide that such bonds are payable from the revenues of that Business Unit. All bonds


issued under Resolutions Nos. 769, 775 and 640 for Nuclear Projects Nos. 1, 3 and Columbia, respec-tively, have the same priority of payment within the Business Unit (the “Prior Lien Bonds”). All bonds issued under Resolutions Nos. 835, 838 and 1042 (the “Electric Revenue Bonds”) for Nuclear Projects Nos. 1, 3 and Columbia, respectively, are subordinate to the Prior Lien Bonds and have the same subordinated priority of payment within the Business Unit. Nine Canyon’s bonds were autho-rized by the following resolutions: Resolution No. 1214 2001 Bonds, Resolution No. 1299 2003 Bonds, Resolution No. 1376 2005 Bonds and Resolution No.1482 the 2006 Bonds. The Packwood Bonds were authorized by Resolution 325 for the 1962 Bonds and Resolution 328 for the 1965 Bonds.

During the year ended June 30, 2007, Energy Northwest issued, for Nuclear Projects No. 1 and 3, and Columbia, the Series 2007-A Bonds, Series 2007-B Bonds, Series 2007-C Bonds, and Series 2007-D Bonds. The Series 2007-A, 2007-B, 2007-C, and 2007-D Bonds issued for Nuclear Project No. 1, Nuclear Project No. 3, and Columbia are fixed rate bonds with a weighted average coupon interest rate ranging from 4.50 percent to 5.33 percent. This transaction resulted in a net-loss for accounting purposes of $24.82 million. According to GasB No. 23, ”Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities,” gains and losses on the refundings are deferred and amor-tized over the remaining life of the old debt or the new debt, whichever is shorter. However an eco-nomic gain of $19.13 million, based on the present value of debt service comparison, was obtained. The economic gain was recorded according to GasB 7, “Advance Refundings Resulting in Defea-sance of Debt.”

The Series 2007-A Bonds, issued for Nuclear Project No. 1, Nuclear Project No. 3, and Columbia are tax exempt fixed-rate bonds that create sav-ings based on improved interest rates.

The Series 2007-B Bonds, issued for Nuclear Project No.1, Nuclear Project No. 3 and Columbia are taxable fixed-rate for the purpose of paying

costs relating to the issuance of the Series 2007-A, Series 2007-B, and Series 2007-C Bonds as well as certain costs relating to the refunding of certain outstanding bonds.

The Series 2007-C Bonds, issued for Nuclear Project No. 1 and Nuclear Project No. 3 are tax exempt fixed-rate bonds that created savings based on improved interest rates.

The Series 2007-D Bonds issued for Columbia are tax exempt fixed-rate bonds to finance a por-tion of the cost of certain capital improvements at Columbia.

Nuclear Projects Nos. 1 and 3 have long debt that contains variable rate interest. These rates are set periodically through a weekly auction rate. These rates ranged from 3.102 percent to 4.000 percent during fY 2007.

The Bond Proceeds, Weighted Average Coupon Interest Rates, Net Accounting Loss, Eco-nomic Gain, and total defeased bonds for 2007-A, 2007-B, 2007-C, and 2007-D are presented in the following tables:

Bond Proceeds ($ in millions)

2007A 2007B 2007C 2007D Total

Project 1 $ 56.17 $ 6.74 $ 237.05 $ - $ 299.96

Columbia 84.17 10.67 - 37.72 132.56

Project 3 91.43 1.72 66.17 - 159.32

Total $ 231.77 $ 19.13 $ 303.22 $ 37.72 $ 591.84

Weighted Average Coupon Interest Rate for Refunded Bonds

2007A 2007B 2007C 2007D

Total 5.64% - 5.16% -

Weighted Average Coupon Interest Rate for New Bonds

2007A 2007B 2007C 2007D

Total 4.99% 5.26% 5.00% 5.00%


Net Accounting Loss ($ in millions)

2007A 2007B 2007C 2007D Total

Project 1 $ 0.05 $ 6.70 $ 12.20 $ - $ 18.95

Columbia -0.57 0.72 - - 0.15

Project 3 0.54 1.71 3.47 - 5.72

Total $ 0.02 $ 9.13 $ 15.67 $ - $ 24.82

Total Defeased ($ in millions)

2007A 2007B 2007C 2007D Total

Project 1 $ 56.17 $ - $ 235.48 $ - $ 291.65

Columbia 84.18 - NA - 84.18

Project 3 91.45 - 65.71 - 157.16

Total $ 231.80 $ - $ 301.19 $ - $ 532.99

During the Fiscal Year ended June 30, 2007, Energy Northwest also issued, Nine Canyon, the Series 2007 Wind Project Revenue Bonds. The Series 2007 Bonds, in aggregate principal amount of $69.4 million, are fixed-rate bonds with an average coupon interest rate of 5.0 percent. The Series 2007 Bonds were issued to finance the costs of acquiring, constructing and installing Phase iii of Nine Canyon which consists of an additional 14 wind turbines.

Energy Northwest did not issue or refund any bonds associated with Packwood for fY 2007.

In prior fiscal years, Energy Northwest also defeased certain revenue bonds by placing the net proceeds from the refunding bonds in irrevocable trusts to provide for all required future debt service payments on the refunded bonds until their dates of redemption. Accordingly, the trust account assets and liability for the defeased bonds are not included in the financial statements in accordance with GasB statements No. 7 and 23. Including the fY 2007 defeasements, $440.4 million, $159.9 mil-lion, and $314.3 million of defeased bonds were not called or had not matured at June 30, 2007, for Nuclear Projects Nos. 1 and 3, and Columbia respectively.

Outstanding principal on revenue and refunding bonds for the various Business Units as of June 30, 2007, and future debt service require-ments for these bonds are presented in the fol-lowing tables:


Columbia Generating Refunding Revenue Bonds

Series Coupon RateSerial or Term

Maturities Amount

1992A 6.30 7-1-2012 $ 50,000

1993A 5.70-5.80 7-1-2008 4,415

1994A (A) 7-1-2009 4,776

5.40 7-1-2012 100,200

104,976

1996A 6.00 7-1-2008 17,475

1997B 5.00-5.20 7-1-09/2011 15,000

1998A 5.00-5.75 7-1-08/2012 160,640

2001A 5.00-5.50 7-1-13/2017 186,600

2001B 5.50 7-1-2018 48,000

2002A 5.20-5.75 7-1-17/2018 157,260

2002B 5.35-6.00 7-1-2018 123,815

2003A 5.50 7-1-10/2015 132,970

2003B 4.15 7-1-2009 4,530

2003F 5.00-5.25 7-1-07/2018 41,330

2004A 3.75-5.25 7-1-08/2018 403,080

2004B 5.50 7-1-2013 12,715

2004C 5.25 7-1-07/2018 26,620

2005A 5.00 7-1-15/2018 114,985

2005B 4.11 7-1-2008 1,600

2005C 4.34-4.74 7-1-09/2015 91,890

2006A 5.00 7-1-20/2024 434,210

2006B 5.23 7-1-2011 4,420

2006C 5.00 7-1-20/2024 62,200

2006D 5.80 7-1-2023 3,425

2007A 5.00 7-1-13/2018 77,575

2007B 5.07-5.33 7-1-12/2021 10,665

2007D 5.00 7-1-21/2024 35,080

Compound interest bonds accretion 6,224

Revenue bonds payable $ 2,331,700

Estimated fair value at June 30, 2007 $ 2,446,584

(A) Compound Interest Bonds

(B) The estimated fair value shown has been reported to meet the disclosure requirements of the State-ment of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled.

OUTSTANDING LONG-TERm DEBT As of June 30, 2007 (Dollars in Thousands)

(B)

Nuclear Project No.1 Refunding Revenue Bonds


Maturities Amount

1989B 7.125 7-1-2016 $ 41,070

1990B 7.25 7-1-2009 3,590

1993A 7.00 7-1-2008 13,075

1993B 7.00 7-1-08/2009 15,090

1993C 5.20 7-1-2008 1,985

1996A 6.00 7-1-2008 40,050

1996C 6.00 7-1-2009 8,445

1997A 6.00 7-1-2008 7,080

1997B 5.00-5.125 7-1-08/2011 4,885

1998A 5.00-5.75 7-1-08/2017 78,260

2001A 4.50-5.50 7-1-10/2013 76,560

2001B 5.50 7-1-2017 23,600

2002A 5.50-5.75 7-1-13/2017 248,485

2002B 6.00 7-1-2017 101,950

2003A 5.50 7-1-13/2017 241,455

2003B 4.06 7-1-2009 18,210

2004A 5.25 7-1-2013 62,485

2004B 5.50 7-1-2013 $1,135

2005A 5.00 7-1-13/2015 72,175

2005B 4.11 7-1-2008 925

2006A 5.00 7-1-08/2017 309,205

2006B 5.16 7/1/2007 9,160

2007A 5.00 7-1-13/2017 51,730

2007B 5.07-5.10 7-1-12/2013 6,740

2007C 5.00 7-1-13/2017 219,020

1993-1A-1 VARIABLE 39,070

1993-1A-2 VARIABLE 39,070

1993-1A-3 VARIABLE 12,810

2003-C-1 VARIABLE 50,235

2003-C-2 VARIABLE 50,000

2003-C-3 VARIABLE 50,250

2003-C-4 VARIABLE 50,000




(C) Auction Rate Certificates that will have a rate of 5.50 through 7/1/2008 and a variable rate there-after until 7/1/2017.

(B)

(C)


Nuclear Project No.3 Refunding Revenue Bonds


Maturities Amount

1989A (A) 7-1-08/2014 $ 11,112

1989B (A) 7-1-08/2014 37,537

7.125 7-1-2016 76,145

113,682

1990B (A) 7-1-08/2010 8,225

1993B 5.65-7.00 7-1-08/2009 23,460

1993C 7.50 7-1-2008 14,150

(A) 7-1-13/2018 23,963

38,113

1997A 5.10-6.00 7-1-08/2011 28,690

1998A 5.125 7-1-17/2018 53,825

2001A 5.50 7-1-10/2018 151,380

2001B 5.50 7-01-2018 10,675

2002B 6.00 7-01-2016 75,360

2003A 5.50 7-1-11/2017 241,915

2003B 4.15 7-1-2009 21,575

2004A 5.25 7-1-14/2016 83,835

2004B 5.50 7-1-2013 1,515

2005A 5.00 7-1-13/2015 129,265

2005B 4.11 7-1-2008 1,060

2006A 5.00 7-1-08/2018 54,760

2006B 5.21 7-1-2008 525

2007A 4.50-5.00 7-1-13/2018 84,465

2007B 5.07 7-1-2012 1,725

2007C 5.00 7-1-12/2018 61,085

1993-3A-3 VARIABLE 18,205

1998-3A VARIABLE 119,560

2001B-3-1 VARIABLE 5,000

2001B-3-2 VARIABLE 10,000

2003D-1 VARIABLE 100,665

2003D-2 VARIABLE 100,400

2003E VARIABLE 98,025

Compound interest bonds accretion 261,328



(A) Compound Interest Bonds


(C) Auction Rate Certificates that will have a rate of 5.50 through 7/1/2010 and a variable rate there-after until 7/1/2018.

OUTSTANDING LONG-TERm DEBT (CONT’D) As of June 30, 2007 (Dollars in Thousands)

Packwood Lake Hydroelectric Project Refunding Revenue Bonds


Maturities Amount

1962 3.625 3-1-08/2010 $ 1,271

1965 3.75 3-1-08/2012 630

Revenue bonds payable $ 1,901

Estimated fair value at June 30, 2007 $ 1,898


Nine Canyon Wind Project Refunding Revenue Bonds


Maturities Amount

2001A 4.75 7-1-2007 $ 1,675

2001A 4.95 7-1-2008 1,760

2001B 4.75 7-1-2007 675

2001B 4.95 7-1-2008 705

4,815

2003 3.00 7-1-2007 820

3.75-5.00 7-1-08/2023 19,335

20,155

2005 4.00 7-1-2007 210

4.00-5.00 7-1-08/2023 61,540

61,750

2006 4.50-5.00 7-1-10/2030 69,410

Revenue bonds payable $ 156,130

Estimated fair value at June 30, 2007 $ 161,375


Total Bonds Payable - Energy Northwest $ 6,346,961


(B)

(C)

(C)

(B)

(B)


Columbia Generating StationFiscal Year Principal Interest Total

6/30/2007 Balance* $ 4,280 $ 48,711 $ 52,991

2008 126,285 121,504 247,789

2009 115,806 120,964 236,770

2010 157,650 108,982 266,632

2011 95,405 100,803 196,208

2012 267,885 95,958 363,843

2013-2017 535,020 358,871 893,891

2018-2022 789,120 148,067 937,187

2023-2024 234,025 17,723 251,748

Adjustment ** 6,224 (6,224) -

$ 2,331,700 $ 1,115,359 $ 3,447,059

* Principal and interest due July 1, 2007.

** Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet

Nuclear Project No. 3Fiscal Year Principal Interest Total

6/30/2007 Balance* $ - $ 27,603 $ 27,603

2008 64,426 109,861 174,287

2009 68,378 109,158 177,536

2010 38,862 107,074 145,936

2011 87,514 97,697 185,211

2012 74,832 93,937 168,769

2013-2017 921,780 349,942 1,271,722

2018 392,310 26,464 418,774

Adjustment ** 261,328 (261,328) -

$ 1,909,430 $ 660,408 $ 2,569,838


** Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet

Nine Canyon Wind ProjectFiscal Year Principal Interest Total

6/30/2007 Balance* $ 3,380 $ 3,768 $ 7,148

2008 4,315 7,335 11,650

2009 3,705 7,139 10,844

2010 3,965 6,963 10,928

2011 4,260 6,774 11,034

2012 4,575 6,570 11,145

2013-2017 38,240 28,224 66,464

2018-2022 48,495 18,134 66,629

2023-2030 45,195 8,692 53,887

$ 156,130 $ 93,599 $ 249,729


DEBT SERVICE REQUIREmENTS As of June 30, 2007 (Dollars in Thousands)

Nuclear Project No. 1Fiscal Year Principal Interest Total

6/30/2007 Balance* $ 9,160 $ 40,371 $ 49,531

2008 80,310 100,452 180,762

2009 87,110 95,623 182,733

2010 80,620 91,161 171,781

2011 89,090 87,204 176,294

2012 87,475 82,828 170,303

2013-2017 1,514,035 253,831 1,767,866

$ 1,947,800 $ 751,470 $ 2,699,270


Packwood Lake Hydroelectric ProjectFiscal Year Principal Interest Total

6/30/2007 Balance*** $ 660 $ 68 $ 728

2008 690 46 736

2009 336 20 356

2010 150 8 158

2011 65 2 67

$ 1,901 $ 144 $ 2,045

*** Principal and Interest due March 1, 2008.


Security - Nuclear Projects Nos. 1 and 3 and ColumbiaProject Participants have purchased all of the capability of Nuclear Projects Nos. 1 and 3 and Columbia. BPA has in turn acquired the entire capability from the Participants under contracts referred to as net-billing agreements. Under the net-billing agreements for each of the Business Units, Participants are obligated to pay Energy Northwest a pro rata share of the total annual costs of the respective Projects, including debt service on bonds relating to each Business Unit. BPa is then obligated to reduce amounts from Participants under BPa power sales agreements by the same amount. The net-billing agreements provide that Participants and BPa are obligated to make such payments whether or not the Projects are completed, operable or operating and notwithstanding the suspension, interrup-tion, interference, reduction or curtailment of the Projects’ output.

On May 13, 1994, Energy Northwest’s Board of Directors adopted resolutions terminating Nuclear Projects Nos. 1 and 3. The Nuclear Proj-ects Nos. 1 and 3 Project agreements and the net-billing agreements, except for certain sec-tions which relate only to billing processes and accrued liabilities and obligations under the net-billing agreements, ended upon termination of the Projects. Energy Northwest entered into an agreement with BPA to provide for continuation of the present budget approval, billing and pay-ment processes. With respect to Nuclear Project No. 3, the ownership agreement among Energy Northwest and private companies was termi-nated in fY 1999 (see Note F, Commitments and Contingencies).

Security - Packwood Lake Hydroelectric ProjectEnergy Northwest, Benton County Pud and Franklin County Pud have signed a Power Sales agreement, as amended, which extends the period through October 1, 2008. The agree-ment became effective November 1, 2002. Benton and Franklin County Puds agree to pay Energy Northwest in exchange for the total output of electric capacity and energy delivered from the Packwood Generation Project. In addition, the Project is required to supply a specified amount of power to Benton and Franklin County Puds. If power production does not supply the required amount of power, the Project is required to provide any shortfall by purchasing power on the open market. The Packwood Participants are obligated to pay annual costs of the Project including debt service, whether or not the Project is operable, until the outstanding bonds are paid or provisions are made for bond retirement, in accordance with the requirements of the bond resolution. The Participants also share project revenue to the extent that the amounts exceed project costs.


NOTE F - COmmITmENTS AND CONTINGENCIES

Nuclear Project No. 1 TerminationSince the Nuclear Project No.1 termination, Energy Northwest has been planning for the demolition of Nuclear Project No. 1 and restoration of the site, recognizing the fact that there is no market for the sale of the Project in its entirety and to-date, no viable alternative use has been found. The final level of demolition and restoration will be in accordance with agreements discussed later in Note F under “Nuclear Projects Nos. 1 and 4 Site Restoration.”

Nuclear Project No. 3 TerminationIn June 1994, the Nuclear Project No. 3 Owners Committee voted unanimously to terminate the Project. During 1995, a group from Grays Harbor County, Washington, formed the Satsop Redevelopment Project (srP). The srP intro-duced legislation with the State of Washington under Senate Bill No. 6427, which passed and was signed by the Governor of the State of Washington on March 7, 1996. The legislation enables local governments and Energy Northwest to negotiate an arrangement allowing such local governments to assume an interest in the site on which Nuclear Project No. 3 exists for economic development by transferring ownership of all or a portion of the site to local government entities. This legislation also provides for the local government entities to assume regulatory responsibilities for site restoration requirements and control of water rights. In February 1999, Energy Northwest entered into a transfer agree-ment with the Satsop Redevelopment Project (srP) to transfer the real and personal property at the site of Nuclear Project No. 3. The SRP also agreed to assume regulatory responsibility for site restoration. Therefore, Energy Northwest is no longer responsible to the State of Washington and efseC for any site restoration costs.

Nuclear Projects Nos. 1 and 4 Site RestorationSite restoration requirements for Nuclear Projects Nos. 1 and 4 are governed by site certification agreements between Energy Northwest and the State of Washington and regulations adopted by efseC, and a lease agreement with the dOe. Energy Northwest submitted a site restoration plan for Nuclear Projects Nos. 1 and 4 to efseC on March 8, 1995, which complied with efseC requirements to remove the assets and restore the sites by demolition, burial, entombment, or other techniques such that the sites pose minimal hazard to the public. efseC approved Energy Northwest’s site restoration plan on June 12, 1995. In its approval, efseC recognized that there is uncertainty associated with Energy Northwest’s proposed plan. Accordingly, efseC’s conditional approval provides for additional reviews once the details of the plan are finalized. A new plan with additional details was submitted in fY 2003. This submittal was used to calculate the arO discussed in Note G of the financial statements.

Business Development Fund Interest in Northwest Open Access NetworkThe Business Development Fund is a member of the Northwest Open Access Network (NoaNet). Members formed NoaNet pursuant to an Interlocal Cooperation Agreement for the devel-opment and efficient use of a communication network in conjunction with BPA for use by the Members and others.

The Business Development Fund has a 7.38 percent interest in NoaNet with a potential man-date of an additional 25 percent step-up possible for a maximum 9.23 percent. As of December 31, 2006, (last audited statements), NoaNet has $20.1 million in network revenue bonds out-standing. The members are obligated to pay the principal and interest on the bonds when due in the event and to the extent that NoaNet’s Gross Revenue (after payment of costs of Maintenance


and Operation) is insufficient for this purpose. The maximum principal share (based on step-up potential) that the Business Development Fund could be required to pay is $2.1 million. It is important to note that the Business Develop-ment Fund is not obligated to reimburse losses of NoaNet unless an assessment is made to Noa-Net’s members based on a two-thirds vote of the membership. In fY 2007 the Business Develop-ment Fund contributed $223k to NoaNet based on an assessment by the NoaNet members. This equity contribution was reduced to zero at year-end because NoaNet had a negative net equity position of $13.8 million as of December 31, 2006. Future equity contributions, if any, will be treated the same until NoaNet has a positive equity position. Financial statements for NoaNet may be obtained by writing to: Northwest Open Access Network, 111 Devereese Road, Chehalis, Wa 98532.

Other Litigation and Commitments Energy Northwest is involved in various claims, legal actions and contractual commitments and in certain claims and contracts arising in the normal course of business. Although some suits, claims and commitments are significant in amount, final disposition is not determinable. In the opinion of management, the outcome of such litigation, claims or commitments will not have a material adverse effect on the financial positions of the Business Units or Energy Northwest as a whole. The future annual cost of the Business Units, however, may either be increased or decreased as a result of the outcome of these matters.

Nuclear Licensing and Insurance Energy Northwest is a licensee of the Nuclear Regulatory Commission and is subject to routine licensing and user fees, to retrospective premiums for nuclear liability insurance, and to license modification, suspension, or revocation or

civil penalties in the event of violations of various regulatory and license requirements.

Federal law under the Price Anderson Act currently limits public liability claims from a nuclear incident to $10.8 billion. As required by law, Energy Northwest has purchased the max-imum commercial insurance available of $300 million, which is the primary layer of protection. The balance is covered by the industry’s retro-spective rating plan that uses deferred premium charges to every reactor licensee if a nuclear inci-dent at any licensed reactor in the United States results in claims that exceed the individual licensee’s primary insurance layer. The current maximum deferred premium for each nuclear incident is $100.59 million per reactor, but not more than $15 million per reactor may be charged in any one year for each incident.

Nuclear property damage and decontami-nation liability insurance requirements are met through a combination of commercial nuclear insurance policies purchased by Energy North-west and BPa. The total amount of insurance pur-chased is currently $2.75 billion. The deductible for this coverage is $5.0 million per occurrence.


NOTE G - ACCOUNTING FOR ASSET RETIREmENT OBLIGATIONS

Energy Northwest adopted sfas No. 143 on July 1, 2002, (see Note B, “Summary of Significant Accounting Policies”). This Statement requires an entity to recognize the fair value of a liability for an arO, measured at estimated fair value, for legal obligations related to the dismantlement and restoration costs associated with the retire-ment of tangible long-lived assets, such as nuclear decommissioning and site restoration liabilities, in the period in which it is incurred. Upon initial recognition of the arOs that are measurable, the probability weighted future cash flows for the associated retirement costs, discounted using a credit-adjusted-risk-free rate, and is recognized as both a liability and as an increase in the capitalized carrying amount of the related long-lived assets. Capitalized asset retirement costs are depreciated over the life of the related asset with accretion of the arO liability classified as an operating expense on the statement of operations and fund equity each period. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss if the actual costs differ from the recorded amount. However, with regard to the net-billed Projects, BPa is obligated to provide for the entire cost of decommissioning and site restoration, therefore, any gain or loss recognized upon settlement of the arO results in an adjustment to either the billings in excess of costs (liability) or costs in excess of billings (asset), as appropriate, as no net revenue or loss is recognized, and no equity is accumulated for the net-billed projects.

Energy Northwest has identified legal obli-gations to retire generating plant assets at the fol-lowing business units: Columbia, Nuclear Project No. 1 and Nine Canyon. Decommissioning and site restoration requirements for Columbia and Nuclear Project No. 1 are governed by the nrC regulations and site certification agreements

between Energy Northwest and the State of Wash-ington and regulations adopted by the efseC and a lease agreement with the dOe (see Notes B and F). Additionally, there are separate lease agree-ments for land located at Nine Canyon. Leases at these locations are considered operating leases and expenses were $727.9k for Columbia, $7.4k for Nuclear Project No. 1 and $268.6k for the Nine Canyon project.

As of June 30, 2007, Columbia has a capital decommissioning net asset value of $18.7 million and an accumulated liability of $105.7 million for the generating plant and a net asset value of $1.2 million and an accumulated liability of $1.6 mil-lion for the isfsi.

An adjustment was made in fY 2007 for Nuclear Project No. 1 to account for costs incurred for decommissioning and site restoration. Costs incurred in fY 2007 of $13k combined with cur-rent year accretion expense of $0.69 million and revision in future restoration estimates of $(0.14) million resulted in a small increase to the arO of $0.54 million. Nuclear Project No. 1 has a capital decommissioning net asset value of $0 and an accumulated liability of $13.8 million.

Under the current agreement, Nine Canyon has the obligation to remove the generation facil-ities upon expiration of the lease agreement if requested by the lessors. The Nine Canyon Wind Project recorded the related arO in fY 2003. As of June 30, 2007, Nine Canyon has a capital decom-missioning net asset value of $0.3 million and an accumulated liability of $0.6 million.

Packwood’s obligation has not been calcu-lated because the time frame and extent of the obligation was considered under this statement as indeterminate. As a result, no reasonable esti-mate of the arO obligation can be made. An arO will be required to be recorded if circumstances change. Management believes that these assets will be used in utility operations for the foresee-able future.


The following table describes the changes to Energy Northwest’s arO liabilities for the year ended June 30, 2007:

Asset Retirement Obligation (millions of Dollars)

Columbia Generating StationBalance at June 30, 2006 $ 100.50

Current year accretion expense 5.24

ARO at June 30, 2007 $ 105.74

ISFSIBalance at June 30, 2006 $ 1.50


ARO at June 30, 2007 $ 1.58

Nuclear Project No. 1Balance at June 30, 2006 $ 13.25

Less: Restoration costs incurred (0.01)


Revision in future restoration estimates (0.14)

ARO at June 30, 2007 $ 13.79

Nine Canyon Wind ProjectBalance at June 30, 2006 $ 0.57


ARO at June 30, 2007 $ 0.60


CURRENT DEBT RATINGS (unaudited)

Energy Northwest (Long-Term) Net-Billed Rating Nine Canyon RatingFitch, Inc. AA- A-

Moodys Investors Service, Inc. (Moodys) Aaa A3

Standard and Poor's Ratings Services (S & P) AA- A-

Variable Rate Debt S&P FITCH MOODYS

Letter of Credit Banks

Bank of America

Long-Term AA Aa1

Short-Term A-1+ P-1

JPMorgan Chase Bank

Long-Term AA A+ Aa3

Short-Term A-1+ F1 VMIG-1

Bond Insurance (Long-Term)

MBIA Insurance Corporation AAA AAA Aaa

AMBAC Assurance Corporation AAA AAA Aaa

Financial Guaranty Insurance Company AAA AAA Aaa

XL Capital Assurance Inc. AAA AAA Aaa

Financial Security Assurance AAA AAA Aaa

FSA (Short-Term)

Dexia A-1+ F1+ VMIG-1

LEARN mORE about Energy Northwest people and projects on the web at: www.energy-northwest.com

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